The increased number of Coronavirus cases and China’s response is hurting demand though a mortar attack in Baghdad could support crude, writes Phil Flynn.
Big wheels are not turning, leading to more oil demand destruction because of the Coronavirus. The negative impact on oil demand with more than 50 million people under quarantine, could have a historical impact on crude oil demand. The story is overshadowing an attack on the U.S. Embassy in Iraq.
China has confirmed 2744 (and climbing) cases of the virus with the death toll at 41. In an attempt to slow the spread of the virus, China has decided to extend the Lunar Day holiday to Feb. 2. That means more demand destruction for oil. In China, factories are closed and will remain closed. Hundreds of flights out of Wuhan and the surrounding 16 cities in Hubei Province have been cancelled. Trains and buses are also locked down as the toll on demand will continue to rise. Saudi Arabia said it believes the crisis so far will have a “minimal impact” on consumption, yet they may be overly optimistic.
Forex Live reports that China's National Health Commission Minister Ma Xiaowei today said the incubation period for the virus could range from one to 14 days, and the virus is infectious during incubation, which was not the case with Severe Acute Respiratory Syndrome (SARS). "According to recent clinical information, the virus's ability to spread seems to be getting somewhat stronger," Ma told a media briefing. He warned that containment efforts would be intensified.
China has now announced that going forward there will be daily briefings at 9 am Beijing time. That's 8 p.m. EST. The WHO repeated on Sunday that it has not yet declared the virus to be a global emergency.
China Southern Airlines, China Eastern Airlines, and Air China have been ordered by the country’s government to cancel flights to and from Wuhan and give prospective passengers full refunds.
The bottom line for crude oil is that we have never seen a quarantine of this magnitude. Planes and trains are not moving and factories are closed and will cause a historic hit to energy demand. Yet the more considerable fallout may be to come as it is possible that this could slow not only the Chinese economy but the global economy as well.
Multiple reports that the U.S. Embassy in Baghdad was struck by at least one rocket Sunday evening in the latest attack on American targets in Iraq, a senior U.S. official confirmed. The official said all Pentagon officials are safe and accounted for. There were no reported deaths and one reported injury. That risk may give oil some backdoor support.
Trade strategy may be key to ride out the crazy moves that will come with the headlines so keep in touch with our daily analysis. Makes sure you are getting my Daily Trade Levels! Read Phil’s energy report at Price Futures Group. Twitter: @energyphilflynn | Facebook: Phil Flynn
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