Why China’s virus outbreak is hitting oil prices and financial markets

China’s coronavirus outbreak continues to spread fear through world markets, with oil prices falling to their lowest point in three months and the FTSE 100 losing more than 2% in early Monday trading.
Brent crude fell by $1.36 a barrel, or 2.2%, to $59.33 (£45.32) by the early hours of Monday, having earlier dropped to $58.68, its lowest since late October.

Prince Abdulaziz bin Salman al Saud, energy minister in one of the world’s major oil producing countries, Saudi Arabia, said members of OPEC (the Organisation of the Petroleum Exporting Countries) could respond to steady the oil market if necessary.

Image: Oil prices are down around 2% on virus fears
He said markets were being “primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite [the virus’s] very limited impact on global oil demand”.
Mihir Kapadia, chief executive at Sun Global Investments, said the virus situation “could keep oil prices fragile until the coronavirus shows signs of slowing down”.


Meanwhile, in the UK, the FTSE 100 had fallen almost 2.2% by 10am with France’s CAC 40 and Germany’s DAX both down almost 2%.

Markets.com analyst Neil Wilson said: “If politics is hard to grasp for most buysiders then virology is impossible – that is enough reason to see de-risking to happen; although I would still anticipate dips to be bought.”

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It comes as China tightens travel restrictions in an effort to contain the virus, which has now killed 80 people and infected more than 2,000.
China’s Lunar New Year is usually a very busy time for travel, entertaining and gift-giving but tens of millions of people are in cities that are under lockdown.
Analysts at S&P Global estimate that if spending on holiday-related services in China falls 10% over the holiday period, the country’s growth will slow 1.2 percentage points.

Image: The Lunar New Year period is usually a popular time for shopping in China
Other countries are also fearful – early on Monday Russian tour operators said they had stopped selling tours to China, while Malaysia imposed a temporary ban on visitors from Wuhan and Hubei.
Shares in travel-related sectors such as airlines and hotel groups have been suffering since the virus outbreak was confirmed.
Among the biggest losers were airlines including British Airways owner IAG, which was down 5.9%, and hotel groups, with InterContinental losing 4.5%.
Luxury brands were also hit hard, as they rely heavily on Chinese consumers. Burberry was down 4.7% and Moet Hennessy Louis Vuitton (LVMH) was down 3.7%.

The deadly coronavirus is likely to already be in the UK
Stephen Innes of AxiCorp said that, apart from the direct impact on tourism and travel, “any economic shock to China’s colossal industrial and consumption engines will spread rapidly to other countries through the increased trade and financial linkages associated with globalisation”.
While most Asian markets were closed for the Lunar New Year holiday, Japan’s Nikkei was down 2%, on track for its biggest one-day fall in three weeks. India’s Sensex was down 0.7%, Thailand’s benchmark fell 2.2% and Indonesia’s was 0.8% lower.

Source : Sky News