Oil drops below $60 as China virus drives demand concern

Crude prices dropped below $60 for the first time in nearly three months

NEW YORK (Reuters) - Crude prices dropped 3% to three-month lows on Monday as the death toll from China's coronavirus grew and more businesses were forced to shut down, fuelling expectations of slowing oil demand.

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Brent crude was down $1.77 a barrel, or 2.9%, at $58.92 at 11 a.m. EST (1600 GMT). U.S. crude was down $1.51, or 2.8%, at $52.68 a barrel.

Both benchmarks had earlier fallen by more than 3% and were at their lowest since October.

Global stock exchanges, which oil tends follows, also sank as investors grew increasingly anxious about the widening crisis. Demand spiked for safe-haven assets, such as the Japanese yen and Treasury notes.

The death toll from the coronavirus rose to more than 80 and the Chinese government extended the Lunar New Year holiday to Feb. 2, trying to keep as many people as possible at home to prevent the virus from spreading further.

Passengers wear masks in a departure lobby at Incheon International Airport in Incheon, South Korea, Monday. (AP Photo/Ahn Young-joon)

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"As long as casualties of the virus remain on the increase, the oil complex will be forced to discount a worst case scenario in attempting to quantify the extent of demand deterioration,'' Jim Ritterbusch, president of trading advisory firm Ritterbusch and Associates, said in a note.

Saudi Arabia and the United Arab Emirates, allies in the Organization of the Petroleum Exporting Countries (OPEC), tried to play down the impact of the virus on Monday, with Riyadh, the de-facto OPEC leader, saying the group could respond to any changes in demand.

An OPEC source said there were "preliminary discussions'' among OPEC+ for an extension of the current oil supply cuts beyond March, and a possible deeper cut was also an option, if there was a need, and if the China virus spread impacted oil demand.

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Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman Al-Saud said he felt confident the new virus would be contained.

Markets are being "primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite (the virus') very limited impact on global oil demand,'' the minister said.

OPEC and its allies, including Russia, that is known as OPEC+ has been withholding supply to support oil prices for nearly three years and on Jan. 1 increased an agreed output reduction by 500,000 barrels per day (bpd) to 1.7 million bpd through March.

OPEC+ "have the capability and flexibility needed to respond to any developments, by taking the necessary actions to support oil market stability, if the situation so requires,'' Prince Abdulaziz said.

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Brent crude oil prices have dropped by almost a fifth since a spike in tensions between the United States and Iran briefly lifted prices above $70 a barrel on Jan. 8.

The losses since are in spite of a 75% drop in output from Libya to less than 300,000 bpd due to an ongoing blockade of oilfields.

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(Additional reporting by Katya Golubkova and Ron Busso in London, Aaron Sheldrick in Tokyo,  Maha El Dahan and Rania El Gamal in Dubai, Ahmad Ghaddar and Shadia Nasralla in London, and Devika Krishna Kumar in New York; Editing by Marguerita Choy and Mark Potter)