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Crude Oil Threatens Double-Digit Drop As Coronavirus Selloff Continues

In a world awash with oil supplies, the hits just keep on coming. Since last Thursday, Feb. 20, crude oil traders have sent prices of the world's largest crude benchmarks down sharply, erasing nearly all of the gains since the 2020 low on Feb. 10. 

Feb. 24 was a particularly painful day for oil markets. West Texas intermediate crude fell more than 5%, while Brent crude futures fell to $55.13 per barrel only a few trading days after approaching $60 per barrel. 

Stacks of oil barrels outside an industrial facility.

Image source: Getty Images.

With another down day in trading on Feb. 25, crude oil futures have now fallen in four straight trading days, losing value every day since Feb. 20, with legitimate worries that there may be more selling to come. 

Coronavirus fears wiping out a strong start to February

For much of the past several weeks, crude oil has traded up, clawing back some of the losses since the start of 2020, but recent news that COVID-19, the strain of coronavirus that's already taken a big bite out of expected oil demand in China, has spread more rapidly outside that country than anticipated. 

According to weekend reports, cases of coronavirus have increased significantly in several countries, including major economic powers in South Korea and Japan, as well as Iran and Italy, which represents a major gateway into Europe. This news has spooked investors across the spectrum, but oil traders have drawn a direct line between spreading outbreaks of COVID-19 and the implications for weakening global oil demand.

Oil stocks taking a beating 

In addition to sending oil prices down, investors sent many oil stocks down sharply in early trading, while even more oil stocks sold off later in trading as crude futures continued their downward spiral. 

Over the past month, the energy sector has taken a pounding. The Energy Select SPDR ETF (NYSEMKT: XLE) is down 10% since Feb. 20 and is now at the lowest levels in more than a decade.

Moreover, there's probably more downside to come, at least in the short term. There is significant global oil supply ready to bring online, and oil demand is already expected to fall in the first quarter because of coronavirus control efforts in China. 

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Jason Hall has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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