Have oil markets overreacted to the impact of the Corona virus?

It seems that in a world remodeled by social media and 24-hour news networks and the endless war between the media appearing to attract your attention and the advertising dollars that come with it, making mistakes when reporting modern-style excitement is not surprising.

And according to author Josh Owens in his report published by the American "Oil Price", the style of excitement can have a tangible effect on how we interact with societies, and as any oil trader knows, feelings are often stronger than the basics when It comes to the vibrant markets.

With this in mind, market watchers should be especially wary of the huge impact that the Corona virus has had on the market this year.

While the damage to demand caused by China's countermeasures was palpable, the massive global hysteria that arose from the spread of multiple myths by various media outlets created unjustified pessimistic sentiments in the markets.

The author noted that it is important to point out at this stage that the aim of this report is not to reduce the severity of the epidemic or its victims, but rather a way to put in our view how dangerous the threat on which the current information is based and to judge whether oil markets exaggerate their reactions With the drop in US oil prices to a level close to fifty dollars.

It is noteworthy that Brent crude futures fell to 54.5 dollars a barrel last Friday, while West Texas Intermediate crude futures fell to 50.3 dollars, and it is now below this level.

The writer explained that despite the simplicity of this comparison, it is worth remembering that there are ten thousand deaths in the United States due to influenza this winter, compared to only 638 confirmed deaths from the Corona virus globally (the number rose to over 811 deaths ).

"There is no doubt that the potential threat of the Coruna virus is cause for concern, but the current death rate is close to that recorded due to influenza from SARS and has not been announced yet," the author said.

Unprecedented action
Indeed, China's severe reaction and its devastating effects on demand are justified, and it is likely that this is the main reason why the epidemic was kept within its borders.

The writer said that China's response to this epidemic was unprecedented, from imposing quarantine on cities to canceling flights, which contributed to giving the country the best possible opportunity to contain the disease.

The writer says that the impact of the Corona Virus on oil demand due to factory closures and a sharp drop in flights could definitely justify the significant drop in oil prices. But to what extent should oil prices drop and for how long?

"In fact, the most important question that arises for energy market watchers is whether the hysteria surrounding the Corona virus has leaked to oil demand expectations and market sentiment. If China reacts effectively and the epidemic is eliminated earlier than expected," he says. Then, it would not be unreasonable to expect Chinese demand for oil to fully recover by the end of the year. This would make the forecasts for a decline in world oil demand during 2020 very low. ”

Inaccurate results
The writer stressed that there are two main factors to consider at the present time, as it seems that most expectations do not take into account that warmer weather is likely to play an important role by helping to eliminate this virus on the one hand. On the other hand, the Corona virus has not yet become an epidemic, so the potential for containing this pest remains within China.

The author pointed out that the most important point here is that expectations and media reports are still based on data sets that have not yet been completed. It is possible that extrapolating data from an early stage in the field of epidemics can lead to problematic and inaccurate results. When combined with our current tendency towards arousing feelings, it can lead to collective hysteria.

The author concludes by saying that there are a number of reasons why we believe that this disease has had a huge impact on the markets. The worst-case scenario is still a possibility, but, in contrast, if the coronavirus is already contained and begins to decline, a change in the tone of governments and medical institutions is likely to lead to a significant shift in customer morale.