• Joel

Oil Prices Hammered On Fresh Coronavirus Concerns

Oil prices were smashed on Monday, dropping as much as 5%, due to the rapid spread of a coronavirus. It is not just the case that it is a domestic problem in China, this is proving to be a serious global epidemic. Stock indices are also getting hit hard across the board, in line with all riskier assets.

Infection cases are jumping in other countries; South Korea, Iran and Italy. Read more details in our blog post earlier today.

Why does oil get hit?

Society typically responds to the spread of viruses by largely stopping transport. They want to quarantine and contain any further case rises, so this is done by minimizing flights and other general travel in and out of a specific region that has been quarantined.

What do vehicles need to transport? Fuel - oil, so naturally there is going to be a fall in the requirement, demand, use. When there is a fall in demand and no one is buying oil, then, of course, the price will head lower on a drop in demand.

What to expect for the market moving forward?

Oil prices will likely remain vulnerable to further downside, as traders would have not likely been pricing in the coronavirus pushing towards a pandemic status.

In terms of FX, do not forget that oil and CAD have a correlation. The strong link in large part, to the amount of Canada’s total foreign exchange earnings that are garnered through crude oil sales. At present, Canada is the fourth fourth-largest producer and exporter of crude oil in the world. Crude oil is the largest single contributor of foreign exchange to Canada. CAD has been one of the underperformers in the FX market as a result.

US OIL - WTI weekly chart

US OIL - daily chart


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