Global oil prices slumped to a three-month low Monday, while broader commodity markets extended declines and transport stocks traded firmly in the red, as investors continue to count the economic cost of the accelerating spread of the deadly coronavirus through the world's second-largest economy.
China has taken the unprecedented decision to extend the Lunar New Year holiday by an extra three days, until February 2, in order to help contain the spread of the virus, which has killed some 81 people and infected at least 2,800 others. Businesses in Shanghai, however, are unlikely to return to full capacity until February 8, and the knock-on impact of closures around the country are likely to take a significant toll on first quarter growth, following the weakest annual GDP reading in at least three decades last year.
"Crude oil as well as products have extended their losses today as the market continues to grapple with the coronavirus news and its short to medium term impact on global fuel demand," said Ole Hansen, head of commodity strategy at Saxo Bank. "While China has restricted travel within but also out of the country the market reaction at this stage is mostly a matter of confidence taking a hit."
"However a prolonged outbreak combined with a continued spreading will reduce global fuel demand as it alter the way people travel and commute around the world," he added.
Brent crude futures contracts for March delivery, the global benchmark for pricing, were last see seen $2.11, or 3.5% lower from their Friday close in New York and trading at $58.58 per barrel, while WTI contracts for the same month were also marked 3.5% lower at $52.34 per barrel.
Saudi Arabia's new Energy Minister, Prince Abdulaziz bin Salman, said Monday that while the "extreme pessimism" seen in markets today is similar to what was witnessed during the SARs outbreak in 2003, he was confident that both the Kingdom and its OPEC allies "have the capability and flexibility needed to respond to any developments, by taking the necessary actions to support oil market stability, if the situation so requires."
Beyond the plunge in crude prices, investors were also re-setting demand expectations for the broader commodity complex, taking copper prices to a two-month low of $5,815 per ton on the London Metals Exchange, a move that followed last week's 5.5% slump, the steepest weekly decline in five years.
Airline stocks were also under pressure Monday, with British Airways parent IAG falling 5.57% in London, Air France KLM sliding 4.94% in Paris and Germany's Deutsche Lufthansa falling 3.88% in Frankfurt as investors priced in the impact of travel restrictions to and from the Asia region amid the accelerating coronoavirus spread. Japan Airlines shares closed 3.9% lower in Tokyo.
In the U.S., Delta Air Lines (DAL) - Get Report shares were marked 2.3% lower in pre-market trading, indicating an opening bell price of $57.45 each, while American Airlines Group (AAL) - Get Report shares fell 2.9% to $26.83 each.