• Crude oil prices have entered a bear market
  • China is the biggest importer of crude oil in the world
  • WTI crude prices are now below $50 per barrel

Crude oil futures sank below $50 a barrel on Tuesday, their lowest level in more than a year, as the coronavirus outbreak in China has hurt global demand. Oil prices have dropped more than 20% since reaching a recent high on Jan. 6 – meaning crude has officially entered a bear market.

A vow by the Organization of the Petroleum Exporting Countries and its allies to cut production by a further 500,000 barrels a day could not even trigger a price rise. (OPEC may consider even more drastic cuts of up to 1 million barrels a day).

“Everyone knows the Saudis will again have to do more than the rest of OPEC if they wish to save crude prices from further [falling] in the present crisis,” said Barani Krishnan, senior commodities analyst at “Unlike past selloffs in oil where oversupply was always the problem, the coronavirus crisis is more about demand or, rather, the lack of it. Here, demand suddenly evaporated almost overnight, and it all happened with one source: China.”

China, the largest importer of crude oil in the world, sees no end to its virus crisis – with more than 20,000 infected and at least 425 dead, the vast country is increasingly cut off from the outside world. Tens of millions of its people are living under a draconian lockdown while many foreign countries (both near and far) have cut or reduced their transportation links. Factories and stores in China have shut down or reduced their hours as Beijing desperately seeks ways to soften the economic damage from the spreading virus.

All of which spells lower oil demand in China.

Bloomberg reported that Chinese oil demand has dropped by around 3 million barrels a day, or by 20% of its normal consumption.

“I’m as bearish as bearish can be from both the China demand devastation and global supply concerns,” said Stephen Innes, chief market strategist at AxiCorp. “There are two evolving, though not mutually exclusive narratives…evolving around coronavirus: panic/fear and the hit to the real economy.”

Crude oil may drop even further if past history serves as any guide.

According to Kensho, an analytics tool used by hedge funds and others, the price of West Texas Intermediate crude is poised to fall another 10%.

“The depth of the impact on oil looks much deeper than we initially thought, even with a deeper OPEC+ cut, with Chinese government measures amounting to a major shutdown of the economy,” Citigroup wrote.

But Brian Gilvary, chief financial officer at BP plc (BP), told Reuters on Monday that he thinks OPEC production cuts through the end of the year should rebalance the market.

Gilvary expects the current virus-related slowdown to shave oil consumption for the whole year by 300,000 to 500,000 barrels per day, or about 0.5% of global demand.

“Any changes in supply policy [by oil producers] will be decided on the basis of their assessment of the duration of the impact of the coronavirus,” said BNP Paribas global head of commodity strategy Harry Tchilinguirian. “If the producer group believes the outbreak to be contained with effects tapering out after a short period, like SARS, they have the option to stand pat and weather the lower-price environment until demand returns.”