Growing fears of how the coronavirus will impact the Chinese economy have pushed West Texas Intermediate and Brent crude prices down more than US$10 from their peak this year and some market watchers see more downside.
On Monday, Citigroup Inc. cut its short-term price forecast on Brent Crude for the first three quarters of 2020 by US$10 to US$18. Citing the impact the coronavirus has had on the global economic outlook, Edward Morse, Citi’s global head of commodities research, slashed his first-quarter forecast to US$54 from US$69 and his second-quarter target to US$50 from US$68. Morse sees prices recovering slightly in the third-quarter and hitting US$53, but that’s still US$10 down from his original target.
‘This outbreak could have a longer and deeper demand impact than earlier thought’
Edward Morse, Citi’s global head of commodities research
In the next three months, he said, Brent prices could fall as low as US$47 per barrel.
“The large oil price revision comes from the view now that this outbreak could have a longer and deeper demand impact than earlier thought, though there remains plenty of uncertainty, with much still depending on how far the virus spreads,” Morse said.
It’s still difficult to determine exactly what impact the virus will have on markets and for what duration, but it clearly has investors spooked. Chinese equity markets suffered their worst day since August 2015, as the Shanghai Composite and Shenzhen Component indices plunged 7.7 and 8.5 per cent respectively.
That pain in both equity and commodities markets should be short-lived, Fiera Capital vice-president and portfolio manager Candice Bangsund said. The coronavirus outbreak has not yet led to Bangsund readjusting her 12-month target of US$70 on WTI.
In the short-term, Bangsund can see prices fall to a floor of US$50 and offer investors an opportunity to buy the dip.
“Acting likely as a floor for prices, I think US$50 is a good downside scenario, maybe a worst case-scenario,” Bangsund said. At some point there is going to be an opportunity to buy the dip and buy the correction.
“Again it’s going to depend on the evolution of the outbreak and whether or not they can get this thing contained in the coming days and weeks.”
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