The GERM Report

-Brent needs a keep-calm moment

-Stein’s Law dictates that demand will return

Crude oil prices were on pace for another round of pain on Wednesday as panic over the spread of the coronavirus overshadowed just about any other narrative relevant to traders. Though fourth quarter indicators already suggested some weakness, the restrictions in place to contain the virus added insult to injury. China is taking in far less clean products and the German economy is stagnating.

Brent crude oil was trading at $53.46 at 8 a.m. ET, down some 1.5% after its US counterpart dropped through $50 per barrel early in the session. There will be no quarter today unless the EIA reports a drain on inventories. Expectations for crude are for a build of around 1.3 million barrels for the week ending February 14.

A warning from the US Centers for Disease Control that an outbreak of the coronavirus may be inevitable in the United States, the world’s largest economy, sent shockwaves through the market in Tuesday trading. Milan, the financial capital of Italy, is under a de facto lockdown, South Korea is hobbled, Japan’s economy is in turmoil and Germany is flirting with recession, all thanks to the outbreak of the virus. A survey of economists from February 19 – 24 by Reuters found the plurality expecting a slowdown or even contraction in most major economies.

For the markets, US data are expected to show another build in inventories. According to research from China National Petroleum Co., refined oil product demand is likely to fall 35.7% year-on-year in the first quarter, so the economy is putting more on the market.

“We now see post-Chinese New Year, total clean product exports are at 156,000 tonnes per day, versus 139,000 tonnes over the same period last year, up 12% year-on-year,” Alexander Booth, head of market analysis at commodity data firm Kpler, told Reuters.

Beneath the market freak-out, however, are signs of relief. The head of the International Monetary Fund called for a keep-calm-and-carry-on moment in an interview with The Wall Street Journal.

“While we are focused on the coronavirus, we don’t want to see attention derailed from other very important issues for the stability and prosperity of the world economy,” IMF Managing Director Kristalina Georgieva said.

And in his best don’t-panic candor, the estimable John Kemp writes that “The most likely outcome is still a severe but short-lived economic impact concentrated in the first and second quarters, followed by a progressive normalization later in the year.”

In pure Stein’s Law fashion, even the Black Plague came to an end and society moved forward. But in the short term, it seems that not even a fire at a Marathon refinery in California can slow the bears. Brent jumped some 5% after an explosion crippled a Philadelphia Energy Solutions refinery in June. Today, such an event might not even register.