CRUDE OIL PRICE FORECAST: BEARISH
- Crude oil prices[1] plunge amid worries about coronavirus spread
- Soft sentiment may limit scope for gains if outbreak risk abates
- FOMC[2] and BOE rate decisions, US and Eurozone GDP on tap
Crude oil price volatility has perked up in 2020. The US-based WTI benchmark hit an eight-month high and a three-month low since the turn of the calendar year. The cumulative result has amounted to the biggest three-week loss since early June.
The early surge came amid worries that escalating conflict between the US and Iran would disrupt deliveries from the Middle East. At surface level, the subsequent selloff reflects the ebbing of those concerns, coupled with concerns about slowing global growth in the event of a true coronavirus outbreak.
CRUDE OIL PRICES MAY FIND LIFELINE IF CORONAVIRUS FEARS ABATE
The fourth quarter saw a cautious recovery in economic activity and a rosier tint to incoming data flow[3]. An early batch of January PMI data from most major economies suggested positive momentum has been largely sustained, suggesting a firmer view on energy demand might have been more supportive.
This may yet materialize if the coronavirus scare dissipates without triggering a disruption akin to the SARS outbreak in 2003. That shaved about 1 percent of China’s GDP and reduced that of the Southeast Asia region by 0.5 percent. Total losses are estimated in the USD[4] 30-100 billion range.
SOURING SENTIMENT MAY LIMIT SCOPE FOR CRUDE OIL PRICE GAINS
Yet markets may remain pressured even if – as the World Health Organization has thus far concluded – the latest virus does not amount to an “emergency”. Sentiment itself may have become vulnerable as scope for upside surprises is exhausted in the near term
