Monday, January 27, 2020

Oil Hits More-Than-3-Month Low on 'Bloodthirsty' Selling

© Reuters.  © Reuters.

By Barani Krishnan - Algorithmic trading models are “bloodthirsty” in their pursuit to sell oil, energy broker Scott Shelton said, and crude futures seemed to reflect that on Monday, hitting three-month lows as the killer coronavirus from China led to unabated selling.

New York-traded West Texas Intermediate, the benchmark for U.S. crude, settled down $1.05, or 1.9%, at $53.14. WTI sunk to $52.16 earlier, hitting a bottom since Oct. 8. 61.06

Brent, the London-traded global benchmark for crude oil, fell down $1.53, or 2.5%, to $59.16. Brent tumbed to $57.74 earlier, also the lowest since Oct. 8.

“We are still in a selloff that is no doubt driven by systematic selling, CTA liquidation and probably a lot of bloodthirsty algo selling,” Shelton, broker for ICAP (LON:NXGN) in Durham, N.C., said in a note.

In just a week, oil’s prospects have been wounded by the fatal coronavirus after a seemingly strong start for 2020 from last year’s gain of 35% for WTI and 24% for Brent.

At Monday’s settlement, WTI was down almost 12% for January, its biggest slide since November 2018. Brent showed a loss of 10%, heading for their worst performance since May.

Even some of the most optimistic analysts in oil, like Price Futures Group’s Phil Flynn, appeared resigned that the market will stay down until there were tangible signs that authorities were winning in their battle against the coronavirus.

The virus has so far killed at least 81 people and infected nearly 3,000 in China and spread to more than a dozen countries, including the United States, where five cases have so far been confirmed.

“The bottom line for oil is that we have never seen a quarantine of this magnitude,” Flynn said, referring to city lockdowns in China affecting more than 55 million people.

“Planes and trains are not moving and factories are closed and will cause a historic hit to energy demand,” he added in a note. “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.”

Chinese authorities estimated over the weekend that traffic by road, rail and air at the start of the week-long holiday seasons fell by 29% from a year earlier, due in part to the broadening clampdown on travel.

Saudi Energy Minister Abdulaziz bin Salman, however, sought to downplay the crisis on Monday, calling the coronavirus a transient risk that had been overblown.

Markets are being "primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite (the virus's) very limited impact on global oil demand," said Abdulaziz, who’s also OPEC’s de-facto chief.

The Saudi minister said similar pessimism occurred during the 2003 outbreak of SARS — another China-originated virus that caused about 8,000 infections and nearly 800 deaths — but it “did not cause a significant reduction in oil demand” even then.

Even so, what Abdulaziz is probably overlooking is that today’s China is quite different to the one from 17 years ago. In 2003, China was the world’s sixth-largest economy, with a daily oil demand of about 5 million barrels per day. Now, it is the second-largest economy, consuming more than 9 million bpd last year, or almost 90% of the equivalent of Saudi production.

Matt Weller, global head of market research at GAIN Capital, said some market participants were “clearly underappreciating” the risks from the virus.

“At its current growth clip, coronavirus could exceed the SARS infection figures by Wednesday and more than double them by Friday,” Weller said on

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