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Sun 23 Feb 2020 11:38 AM

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Further fall in oil prices expected as coronavirus crisis continues

Investors should brace themselves for a week of negative air around oil prices

Further fall in oil prices expected as coronavirus crisis continues

Jameel Ahmad, global head of currency strategy & market research at FXTM.

WTI Oil managed to continue its price recovery into the past trading week from the mountain 20 percent fall encountered between January 20 to February 4 as the world watched the unforeseen coronavirus break out, with WTI reaching its highest valuation in close to a month above $54.60 on February 20. 

The recovery in WTI has been based on hopes that the virus has been contained following strict controls in China and with some businesses resuming operations - albeit on limited schedules - that the downfall in economic productivity can hopefully be prevented, but with more nations reporting cases of the virus, should investors brace themselves for a week of negative air around oil prices coming ahead?

This is an issue that investors are having to contend with heading into the final trading week of February as news broke out on Friday that 100 cases were reported in South Korea on the same day, with a health emergency declared on Sunday in South Korea’s fourth largest city, Dageu.

South Korea raised its alert level on the new coronavirus to the "highest", President Moon Jae-in said on Sunday, in the face of a sudden spike in the number of infections.

South Korea is considered as a manufacturing hub and known for its technological advances, while China is yet to restore capacity of economic productivity following 889 new cases of the virus reported on Friday 21.

I would expect risk sentiment from investors to begin this week on a negative footing.

For oil prices, this means that investors will be reluctant to take on risk in their portfolios, which in turn means investor hesitance towards oil.

Written by Jameel Ahmad, global head of currency strategy & market research at FXTM

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