Perth: Oil prices extended losses and fell below $50 a barrel on Tuesday, as a rising death toll from a flu outbreak that started in Mexico fanned fears of a pandemic potentially hurting the world economy and air travel.
Swine flu, a new virus that contains avian and human components, has killed up to 149 people in Mexico and world health experts moved closer on Monday to declaring it the first flu pandemic in 40 years as more people were infected in the United States and Europe.
US oil futures fell 41 cents to $49.73 a barrel by 7:53am, adding to Monday’s losses of $1.41. London Brent crude was down 41 cents at $49.91.
“Developments of the swine flu scare are playing a big part in the markets. Sentiment will worsen if the market believes that the flu has become more widespread and will cause more disruption to international trade and travel,” said Toby Hassall, chief analyst at Commodities Warrants Australia.
“Investors are probably also taking a cautious stance ahead of the slew of economic data due later today.”
Reminiscent of the Asian bird flu earlier in the decade, a swine flu outbreak could become a major setback to the already fragile state of the world economy.
The World Bank estimated in 2008 that a flu pandemic could cost $3 trillion and result in a nearly 5% drop in world gross domestic product.
Analysts said gains in the dollar, a safe haven in times of stress, are also weighing on oil and other commodities.
Oil prices have recovered from about $35 a barrel in February to hover around $50 for most of this month, as it tracks a rebound in equities markets.
But some analysts cautioned that oil prices would likely pull back from current levels in the near term as demand remained weak and fundamentals did not support higher prices.
“Oil looks set to fall if the market swings its attention to supply conditions. It still seems the glass is half-full when it comes to demand,” Mark Pervan, head of commodities at Australia and New Zealand Bank, said in a research note.
Reflecting still-weak demand, US crude stocks probably rose 2.2 million barrels last week, a preliminary Reuters poll showed.
The poll also forecast a 300,000 barrel decrease in gasoline stocks and a 300,000 barrel build in distillate stocks.
The weekly inventory report from American Petroleum Institute will be released later in the day.
The US Federal Reserve will begin the first of a two-day policy meeting on Tuesday, while economic data due out later include US retail sales and consumer confidence.