The coronavirus outbreak in China isn’t just hurting thousands of infected people, it’s also taking a toll on oil prices.
CNN is reporting that crude oil is now trading 10% lower than it was two weeks ago now that the world’s biggest oil consumer has stopped in its tracks.
Since the outbreak began, 80 people have been killed by the coronavirus with 3,000 other cases detected.
To try to slow the spreading virus, china has locked down cities all over the country meaning more than 60 million people can’t travel.
With motors turned off all over the country, the world has felt the effects.
“Well when you’re dealing with that many people who are dealing with not having any kind of transportation," Raymond James Financial Advisor Karl Rundgren said. "Subways are shut down, trains are shut down, trains are essentially being grounded in these areas, that’s ultimately going to mean less oil consumption and that’s what’s causing some of the concern there and could ultimately lower prices.”
China is the world’s largest consumer oil, which is why this quarantine has packed such a big punch in the global oil market.
Rundgren said while crude prices have seen a fast drop, it’s going to take more time to see the same effect at the gas pump.
He said Texas gas has only gone down a few cents for now, but if China stays dry through February, those prices will likely tumble.
“You’re going to see those gas price decreases start to pick up speed. I think you’ll see it go from a couple cents per gallon maybe to ten cents, fifteen cents a gallon," Rundgren said. "And mainly from the standpoint of that we normally would have seen a seasonal increase at that time and that may ultimately not happen, it may freeze where it is, or it might recede slightly. So, it may not be a big decrease all at once. It may just be the prices don’t go up like they would normally.”
Rundgren said what’s really concerning energy stockholders is if the quarantines reach even further.
He said if other parts of china or even other countries start to shut down transit too, oil prices will continue to sink.
“This could be a case where we have a really bad outburst like we do right now in China and it kind of peters out," Rundgren said. "It could get much worse than that. We just don’t know yet.”
Rundgren mentioned a similar Chinese outbreak in 2003 where oil prices bounced back one quarter after the quarantines were lifted.
He said this may play out the same way, but it’s too early to tell.
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Karl Rundgren is a Financial Advisor with the Van Pearcy Wealth Services Team
2020 W Cuthbert Ave.
Midland, TX 79701
(432) 683-0000
Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Van Pearcy Wealth Services is not a registered broker/dealer and is independent of Raymond James Financial Services.
This material is provided for educational purposes only and does not constitute investment advice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results.
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