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Oil Prices Fall on Coronavirus Outbreak Affecting China Demand

This article was originally published on ETFTrends.com.

The coronavirus outbreak is keeping oil traders on their toes with the most bearish ones benefiting in Monday's trading session as oil prices retreated. Traders are sensing the virus outbreak would tamp down demand for oil in China.

“The question everyone is desperate to find the correct answer to is how damaging the epidemic is to the global economy and therefore to oil demand and how long it will last,” said oil broker PVM’s Tamas Varga. “No-one knows but as of today the crisis has not been contained, it is spreading and it has already claimed more lives than the SARS virus in 2003.”

After prices peaked in January, oil has taken a 20% dip since then and with the effects of the virus in full swing, it's difficult to determine a bottom for prices. In Monday's trading session, Brent crude fell 64 cents--1.17%--to $53.85 a barrel, and U.S. West Texas Intermediate dipped 47 cents, or 0.9%, to hit $49.87 per barrel.

“The coronavirus epidemic has a negative impact on economic activities, especially on the transport, tourism and industry, in China particularly, and also increasingly in the Asian region and gradually in the world,” said Algeria’s oil minister Mohamed Arkab.

Furthermore, what Russia does with their production supply is pushing oil prices lower. Per a CNBC report, Russia "needed more time to decide on a recommendation from a technical committee that has advised the Organization of the Petroleum Exporting Countries and its allies to cut production by a further 600,000 barrels per day (bpd)."

“The oil market will be waiting on Russia’s response, to see if the OPEC+ can prove itself as being proactive producer group in dealing the coronavirus virus outbreak which, like SARS, is effectively a negative demand shock,” BNP Paribas analyst Harry Tchilinguirian told the Reuters Global Oil Forum.

Profitable Time to be a Bear

Traders who want to take advantage of a continued slide in oil prices can look to inverse funds like the DB Crude Oil Double Short ETN (DTO) . DTO eeks to track the price and yield performance, before fees and expenses, 200% of the inverse daily performance of the Deutsche Bank Liquid Commodity Index - Optimum Yield Oil Excess Return.

The fund gives investors the opportunity to take a short view on the performance of the index. The index is a rules-based index composed of futures contracts on light sweet crude oil (WTI) and is intended to reflect the performance of crude oil.

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