Oil prices (CL=F) tumbled nearly 4% on Monday as investors worried over the impact of the coronavirus spreading outside of China. One oil expert believes that oil is already approaching the “area of the worst-case scenario.”
“We're looking at a worst case scenario of a $41 a barrel on the downside,” said Stephen Schork, founder of The Schork Report, on The Ticker. “Crude oil prices right now are in the low $50s — we're looking at a potential $10 decline ... by the first half of the year”
Schork explained a pullback is typically part of the “normal demand decay” that happens in February each year, but given that China is the second-largest economy in the world, the significant pullback ahead of upcoming holiday travel season is not a good sign.
“We're going to our worst-case scenario right now that in this quarter, we'll expect to see close to a 20% pullback in demand for jet fuel,” said Schork.
“Relative to what we saw back in 2003 with SARS, we're looking at a potential high of 31% decline in demand,” he explained.
What does this mean for the average driver?
The national average gasoline prices were at $2.47 per gallon on Monday, according to AAA, but Schork believes it could fall closer to $2 this summer pressured by falling crude prices. That may sound like good news, but there is a flip-side to this scenario.
“Keep in mind that commodity prices do not drive economic growth; economic growth drives commodity prices,” said Schork.
“[The] United States is producing crude oil like a banshee” during a time when there is a significant pullback in demand, he said, while there’s also significant pullback in economic activity.
“I tell you, we don't want to be paying cheaper gasoline prices, because that is just a nasty telltale of how bad it could potentially be,” Schork added.
Grete Suarez is producer at Yahoo Finance for YFi PM and The Ticker. Follow her on Twitter: @GreteSuarez