Travel ban by Donald Trump causes oil price to fall

London — Oil prices fell on Thursday following surprise travel restrictions imposed by US President Donald Trump in an attempt to halt the spread of coronavirus after the World Health Organisation described the outbreak as a pandemic.

The slump in oil is being compounded by the threat of a flood of cheap supply after Saudi Arabia and United Arab Emirates said they would raise output in a standoff with Russia.

Brent crude was down $2.46, or 6.9%, at $33.33 by 11.08am GMT. US crude was down $2.05, or 6.2%, at $30.93.

Global shares also took a hit after US President Donald Trump said the US would suspend all travel from Europe as he unveiled measures to contain the coronavirus. The oil market was taking the decision very negatively due to the effect on jet fuel demand and expectations for business activity and economic growth, said Bjoernar Tonhaugen, head of oil markets at energy consultant Rystad.

“It leads to further loss of confidence in governments’ handling of the fallout and increases uncertainty about the extent of the virus impact on the overall economy, reflected in sharp falls in risk assets across the board this morning.”

The two benchmarks are down about 50% from highs reached in January. They had their biggest one-day falls since the 1991 Gulf War on Monday after Saudi Arabia launched a price war.

The six-month Brent contango spread from May to November widened to as low as $6.40 a barrel, a level not seen since February 2015.

Contango is where the futures price of a commodity is higher than the spot price, prompting traders to fill tankers with oil to store for later delivery.

As many await to see who will break first in the Saudi-Russian price war, Ehsan Khoman, head of MENA research and strategy at MUFG, said: “We believe that both sides have enough financial capacity and sufficiently divergent goals to sustain the oil price war for many quarters, not months.”

The US Energy Information Administration (EIA) and oil cartel Opec have slashed forecasts for oil demand because of the coronavirus outbreak and now expect demand to contract this quarter.

“If the crisis persists for another two or three months, many companies will go bankrupt, especially those in the US energy sector, which also have to deal with an oil price war,” said Hussein Sayed, chief market strategist at FXTM.

Weekly data on US inventories showed minimal effects from the coronavirus pandemic so far. Crude stocks increased by 7.7-million barrels, but inventories of petrol and diesel fell sharply, as refining runs remain at seasonally low levels.

Reuters