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Oil expert: 'We're looking at a worst case scenario of a $41 a barrel'

Grete Suarez

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.

A Worker is seen mopping the floor inside the terminal of the Hong Kong International Airport on February 22, 2020 in Hong Kong, China. the coronavirus or Covid-19 which originated from Wuhan China has infected over 77,000 and killed 2361 worldwide to date, passenger flights into and out of the Hong Kong has drop by two-thirds with airlines cancelling flights and travellers plummet because of the Coronavirus in Hong Kong. (Photo by Vernon Yuen/NurPhoto via Getty Images)

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

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