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Citi sees oil plunging as much as $18 on Coronavirus fears


Public health officials still haven’t been able to determine what kind of impact the coronavirus will have globally and it’s clear by how they’re trading that investors are struggling to do the same.

On Monday, the U.S. markets bounced after a downside swing in January eliminated the Dow Jones Industrial Average’s 2020 gains. Gold also cooled off, suggesting that investors are becoming less worried about the virus that has now resulted in 361 deaths.

“I think the brunt of the volatility will continue to be felt more on the ground in China,” said Michael Arone, chief investment strategist at State Street Global Advisors. “As it relates to the U.S. there’s a growing sentiment that historically after some of these events it has proven to be a buying opportunity … and some folks are stepping in.”

U.S. investors appear to be growing more comfortable with the risks associated with the virus, Arone said, especially because it hasn’t caused any deaths in North America yet. There’s also a constructive backdrop for the markets to work in — earnings and manufacturing are solid, he said.

While the U.S. might feel the effects of an economic slowdown in China in a few quarters, what happens in Chinese markets overnight isn’t a blueprint for what’s to come on Wall Street. Chinese markets suffered their worst single-day sell-off since August 2015 after returning to the markets for the first time since Jan. 23, when they shut down for an extended Lunar New Year holiday.

Crude oil didn’t fare much better and continued its downward slide on Monday. Demand has fallen sharply and both West Texas Intermediate and Brent Crude have already shed more than US$10 since early January. According to market watchers, there’s still more room to fall.

Citing the impact the coronavirus has had on the global economic outlook, on Monday, Edward Morse, Citigroup Inc.’s global head of commodities research, deeply slashed his short and mid-term price targets on Brent Crude for 2020. Morse cut 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.

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.

Help may on the way from the Organization of the Petroleum Exporting Countries, according to the Wall Street Journal. OPEC’s members are meeting this week to debate taking possible action and Saudi Arabia is reportedly pushing for a curtailment. Should that occur, Bangsund said it could help establish a floor of $50 on WTI.

“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.”

Stephen Innes, chief market strategist at AxiCorp, is looking to deploy the same strategy on Chinese equities. The fear about the virus is overblown, he said. He works out of Bangkok and while there have been more than a dozen cases, it’s mostly “business as usual.” He doesn’t have a business trip planned to Hong Kong or Shenzhen, but wouldn’t cancel one if he did, he said. Despite the downward movement in China, there will be no equities crash, he said.

Innes said he has close to 10 per cent to work with but is just fine with only making five to ensure he’s not buying on the way down. Chinese a-shares are volatile so he’s willing to wait it out.

“I’m patient because I know it could get worse before it gets better,” Innes said. “There’s no sense of urgency.”

Financial Post

20 Comments on "Citi sees oil plunging as much as $18 on Coronavirus fears"

  1. Sissyfuss on Tue, 4th Feb 2020 8:15 am 

    Gas prices in Huwan are a real bargain. Just don’t try driving to a gas station.

  2. world supremacist muzies bag day feb1 2021 on Tue, 4th Feb 2020 8:55 am 

    It was at Berghof, furher’s Bavarian mountain retreat, in the spring of 1942.

    Gathered for consultation: Generals Mussolini, Jodl, furer, Keitel, and Greim, had the look of anticipated victory on their faces.

    Two years later at Berghof: furer, his Generals, and Mussolini, met again, but this time minus their former bravado.

    -(((supertard))) bro nat

    oswald spengler said whiteys don’t wage wars then darkies will and win.

    he also advised (((fuhrer))) to avoid war

    so i previously said whitey supertard trump is dumb becaue war is brought to him no matter what. the cons are the biggest cowards

    so now muzzies are waging wars and we have muzzies lovers everywhere

  3. JuanP on Tue, 4th Feb 2020 10:42 am 

    This is a great time to go on a road trip, guys! Enjoy it while it lasts! I intend to.

  4. Anonymouse on Tue, 4th Feb 2020 12:20 pm 

    Never let a good crisis go to waste as the saying goes. Making paper profits in a manufactured crisis is as amerikan as invading weak defenseless countries in order to topple their governments, trash their infrastructure, and to occupy them permanently in order to facilitate stealing their resources.

    Maybe this crisis will present more opportunities to short oil than the:

    Iran-is-sinking-oil-tankers crisis. That one kinda fizzled.

    Or the Iran-is-destroying-Saudi-Pipelines-and-Refineries crisis. That one went nowhere fast.

    Or how about the uS killer drone assassination of Iran’s General Soleimani. That op looked kind of promising at first, but aside from a few minor market belches, didn’t amount to much either.

    They just dont make crisis like they used to. Well, until now. Maybe.

    Those were all kind of duds as well. At least as far as the speculators were concerned. But, maybe this virus crisis is just what the speculative paper flippers in Jew York and London need to make the kind of paper profits that all the other uS manufactured crisis’s have not really been able to deliver of late.

    As far as (local) prices go, fuel is nearly $1.50\Ltr. here. And the roads as as over-saturated and congested as usual.

  5. JuanP on Tue, 4th Feb 2020 12:27 pm 

    Anon, quit being a turd, the oil markets are global or did you fail to learn that?

  6. JuanP on Tue, 4th Feb 2020 12:30 pm 

    Man, Democrats are really turning into incompetent fools:

    Biden Threatens Lawsuit To Halt Release Of Real Iowa Caucus Results

    The Democratic candidates appear to be headed for an epic court battle to determine who won the Iowa caucus – a court battle that could potentially outlast the entire primary season and ensure that the real winner of Iowa (cough – Bernie Sanders – cough) is never revealed.

  7. Duncan Idaho on Tue, 4th Feb 2020 12:49 pm 

    The party Dims are really freaked on Sanders.
    They would rather have Trump than Sanders.
    They have a common interest.

  8. Duncan Idaho on Tue, 4th Feb 2020 1:15 pm 

    “I regard it as completely unimportant who in the party will vote and how, but it is extremely important who will count the votes and how.”

  9. More Lunatic Davy ID Fraud on Tue, 4th Feb 2020 1:39 pm 

    JuanP on Tue, 4th Feb 2020 12:27 pm

    JuanP on Tue, 4th Feb 2020 12:30 pm

  10. JuanP is a liar on Tue, 4th Feb 2020 1:53 pm 

    More Lunatic Davy ID Fraud

  11. More Lunatic Davy ID Fraud on Tue, 4th Feb 2020 1:58 pm 

    JuanP is a liar on Tue, 4th Feb 2020 1:53 pm

  12. world supremacist muzzies bag day feb1 2021 on Tue, 4th Feb 2020 2:26 pm 

    i told you guyes our navy so weak can’t burry muzzies at sea according to muzzie custom but it’s not a muzzie

    head spun

    now we have another whitey supertard who is experienced at muzzie burial at sea according to muzzie custom but it’s not a muzzie

    head spun

    and he resigned.

    people u need to realize we’re in srs trouble. we now hand dead muzzies to phils navy which then gave to Dutch navy to bury muzzies as dead muzzie but it’s not a muzie

    head spun

    we need to dig up all isis muzzies and give them proper muzzie burial at sea but they’re not muzzies

    head spun

    we’ve reached a point of no return, our navy will never be able to burry muzzies as muzzies but they’re not muzzies ever agin’

    head spun

    today is only 364 days to world supremacist muzzies bag day feb1 2021

    today is world grater nedertardland 98 days away

  13. makati1 on Tue, 4th Feb 2020 6:16 pm 

    Yep! 2020 is turning out to be an exciting year. Buckle up and pass the San Mig… ^_^

  14. Davy on Tue, 4th Feb 2020 6:23 pm 

    “Buckle up and pass the San Mig… ^_^”

    LOL, makato is drinking hard now. He once told us he didn’t drink. What a liar.

  15. makati1 on Tue, 4th Feb 2020 7:01 pm 

    D.Davy, I NEVER said I didn’t drink. YOU are the liar here as everyone knows. I ignore most of your posts as they are just goat shit.

  16. Chrome Mags on Tue, 4th Feb 2020 7:21 pm 

    Hey, $18 bucks a barrel as predicted in the headline – wouldn’t that about match Shortonbrains&oil’s ETP chart? If so, it only took a virus en route to a pandemic to do it.

  17. More from the Lunatic on Tue, 4th Feb 2020 7:22 pm 

    Davy on Tue, 4th Feb 2020 6:23 pm

  18. Abraham van Helsing on Sat, 8th Feb 2020 7:04 am 

    Almost certain that Corona originates from a bio-weapon:

    But from who?

  19. Davy on Sat, 8th Feb 2020 7:18 am 

    “But from who?”

    Sloppy Chinese!

    You have people over there engineering babies so take a step further and see that bio engineered viruses are perfectly acceptable in China’s anything and everything goes scientific community. These Chinese scientists are in competition to see who can achieve more notoriety so there is a recklessness in their system. Other places in the world are messing with weaponized bio things but in China there is a mad dash to do these things and now they are paying the price.

    Notice how the cloggo wants to insinuate the US placed this virus there. LOL. The cloggo wants a WWIII so this dovetails with his Anglo derangement agenda of a Sino American war. He loves the idea of a great war with massive death tolls of course nothing will happen in eurotardland in the cloggo’s mind

  20. Abraham van Helsing on Sat, 8th Feb 2020 7:56 am 

    “Sloppy Chinese!”

    Good luck with convincing the Chinese that that is the real explanation.

    This is a Chinese-sourced “conspiracy theory”:

    I can’t prove anything, but once you know the truth about 9/11, Hiroshima, Pearl Harbor setup, holohoax, “German war guilt”, you know for a fact that the US deep state is very well capable of doing such a thing.

    But again, the truth doesn’t matter in geopolitics. If globalist economic BAU is over, war is next, just like in the thirties. I suspect that the twenties of this century will be like the thirties of the previous century.

    “He loves the idea of a great war with massive death tolls of course nothing will happen in eurotardland in the cloggo’s mind”

    You make it sound as if my posts control the fate of world history, I’m quite flattered. Didn’t know I was that

    Seriously, just predicting what I think is going to happen next. My money is not on ZOG (it is on silver and gold instead).

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