Goldman Says Oil Could Drop $3 If Virus Plays

Out Like SARS

Oil markets are likely to take a hit from China’s deadly coronavirus, with aviation fuel suffering the most, if the SARS epidemic in 2003 is any guide, according to Goldman Sachs Group Inc The virus that originated in Wuhan could result in global demand falling by 260,000 barrels a day in 2020, with jet fuel accounting for around two-thirds of the loss, Goldman said in a note. That would probably lead to a $2.90 a barrel drop in oil prices. The bank’s projections translate the estimated SARS demand impact into 2020 volumes.The coronavirus is causing nervousness across financial markets, especially as it’s spreading just as hundreds of millions of Chinese prepare to travel domestically and internationally for the Lunar New Year holidays.

The potential disruption is adding another wildcard to oil markets, which have already been roiled this year by tension in the Middle East and North Africa.See also: China Launches Nationwide Screening as Virus Death Counts“While an OPEC supply response could limit the fundamental impact from such a demand shock, the initial uncertainty on the potential scope of the epidemic could lead to a larger price sell-off than fundamentals suggest,” Goldman analysts Damien Courvalin and Callum Bruce said in the note.Oil price volatility may rise in the coming weeks, although Goldman still sees a sustained backwardation in Brent crude this year as the overall impact on fundamentals remains limited so far.