Coronavirus outbreak in China driving global oil prices down

"Coronavirus represents a real threat to oil demand," a senior analyst said.

The spread of the novel coronavirus has driven down the price of oil and gasoline in the U.S. as China, the world's second-largest oil consumer, is trying to quell the outbreak.

"Coronavirus represents a real threat to oil demand," Patrick DeHaan, the head of petroleum analysis at GasBuddy, told ABC News Tuesday.

"We are already looking at a real downturn in demand. You’re looking at thousands of flights being cancelled in China," he added. "Some of it is certainly rooted in speculation and worry over the continued spread."  

Prices for Brent crude oil, the international benchmark, fell approximately 4% Monday, hitting its lowest levels in more than a year. Prices for the American benchmark, U.S. West Texas Intermediate oil, also fell approximately 3% Monday. Both bounced back slightly on Tuesday, possibly due to reports that OPEC leaders are meeting this week to discuss output cuts as the global oil demand falls.

Oil demand in the China has fallen by 20% amid the lockdowns and halt of activity due to the coronavirus, Bloomberg reported, citing anonymous sources with knowledge of the country's energy industry.

Moreover, a handful of major airlines including Delta, American and United have announced they are suspending all flights to mainland China amid the outbreak.

DeHaan said he thinks the slight rally in oil prices Tuesday is tied to a wider global stock market rally as China attempts to reassure the world and investors that the situation is manageable.

"I think you’re seeing a small bounce [in oil prices] today because China has sort of stepped in to reassure markets that we’ve got this," he said.

The coronavirus outbreak in China has already been tied to lower gas prices at the pump for American motorists.

"Gas prices this time of year generally do tend to decline, but in the last couple of weeks we’ve seen gas prices fall essentially because of coronavirus," he added. "Today, in 19 states, we have at least one gas station selling gas for less than $2 a gallon."

The American Automobile Association said in a statement Monday that for the second week in a row "crude prices have decreased as a result of increased market concerns regarding the growing impact of the coronavirus on global travel." The organization reported that the national gas price average is $2.47, or 11 cents cheaper than the beginning of the year.

DeHaan added that it "would not be surprising" if OPEC leaders announce a small, short-term production cut due to the fall in oil demand because of coronavirus.

"Even before coronavirus, demand numbers in the U.S. were pretty bleak, and now the seasonal downturn in demand is enhanced by what we are seeing out of China," he said. "It would not being surprising if they agreed to a small production cut."

"They are under a decent amount of pressure to stem the decline in the price of oil," he added. "I would expect them to act."

While oil prices entered bear market territory this week -- a drop of 20% from recent highs -- DeHaan said he doesn't see prices falling much lower.

"These are the darkest days for oil right now," he said.