As we go to press, the major averages are down, coming off a record-setting week of setting all-time highs. Worries about the spread of the coronavirus and the warning from tech giant Apple over the virus’s impact on corporate profits and the global economy have pushed equites lower in Asia, Europe, and the U.S.
China’s National Health Commission reported another 98 deaths nationwide, bringing the total deaths to 1,891 and some 72,000 confirmed cases.
Oil prices also bumped up, with Brent crude trading above $57 a barrel. Up 4.4 percent on the week after briefly dipping below $50, oil is having its best performance since early January, when Brent crude spiked to $70 a barrel following the U.S. assassination of Iranian general Qasem Soleimani.
Virus Strains Energy Markets
China, the world’s largest energy importer, is expected to drop about 900,000 barrels a day of oil imports, or about 1 percent of global usage, because the coronavirus outbreak has paralyzed the country’s industries and transportation.
Its imports of liquefied natural gas, or LNG, a key industrial and power-generation fuel, were down 10 percent in January, year on year.
To get out of purchase agreements, some Chinese buyers are declaring “force majeure,” a legal term for unforeseen circumstances that justify voiding a contract. Total, the French oil giant, recently rejected such a claim.
The issue is becoming a crisis as ships laden with energy-guzzling chilled, compressed gas have nowhere to go; the world market for LNG is bursting with supply and prices are at or near record lows.
OPEC, led by the Saudis, have pressed for oil production cuts beyond the 2.1 million barrels a day agreed on in December to keep prices from falling further. But Russia has balked, needing to keep revenue coming in to fuel its faltering economy.
TRENDPOST: Global oil inventories added 7.5 million barrels last month, more than twice the volume analysts had forecast.
China’s coronavirus epidemic cut the country’s consumption sharply but not enough to account for all of the oversupply. As Trends Journal readers know, its the global economic slowdown that is putting a deeper and longer-term drag on prices rather than the coronavirus.
On the Gold Front
The virus fears and its prospects for negative economic fallout have pushed gold prices above $1,600 per ounce.
TREND FORECAST: With the markets under pressure, gold, a quintessential safe-haven asset, has spiked $20 per ounce as we go to press.
On 6 June, 2019, we sent Trend Journal subscribers a Trend Alert, “The Gold Bull Run.” At that time, gold was $1,332 an ounce. We maintain our forecast for gold to spike toward the $2,000 per ounce this year.
Furthermore, considering gold’s upward momentum and growing geopolitical/economic uncertainty, we have moved our downside risk from $1,390 per ounce to $1,450.
TRENDPOST: The markets are shaking off some of the early panic about the coronavirus epidemic. Investors are realizing what we’ve been saying about the coronavirus all along: the outbreak is serious and will spread, but it won’t be as bad as early-day doomsayers warned.
Considering the number of reported cases and deaths in China ten weeks after the virus was first reported, for a country of 1.4 billion people, the current numbers, as we interpret them, are insignificant and not a cause for panic.
U.S. investors also were comforted by Fed Chair Jerome Powell’s statement that the central bank would closely monitor the coronavirus in the U.S. and take steps to prop up the economy if the virus afflicts the markets.
PUBLISHER’S NOTE: It should be noted, for example, that while less than 2,000 people have died in China from the coronavirus, a 2015 study estimated that 1.6 million Chinese die each year from heart, lung, and stroke problems because of polluted air… which, in turn, shaves off some $38 billion from their economy each year.
