| This confluence of trends promoted me to project a healthy year for the broader energy sector. What a difference an epidemic makes. How Quickly Things Changed But shortly after I made the prediction, news starting coming out of China that people were dying from a new virus strain. Since then, that news has just gotten worse and worse. So far nearly 70,000 people have been diagnosed with Covid-19, a new strain of coronavirus. The death toll is now over 1,600, nearly all in China. Beyond the obvious concern of a potential deadly pandemic sweeping the globe, this outbreak presents an immediate change in the outlook for oil. Why? Because China is the world's largest consumer of oil. To contain the virus, Beijing is taking aggressive measures that are hurting the Chinese economy. (At least one economist is warning that the virus will paralyze China). As the world's largest oil consumer, a slowdown in China's economy suddenly has a real potential of causing global oil demand to fall for the first time in a decade. Citigroup (NYSE: C) analysts have suggested that the virus could reduce oil demand by 1 million barrels a day (BPD), but this is still clearly a developing situation. OPEC's Hands Are Tied OPEC must now contend with U.S. shale oil growth and a negative short-term impact on demand. That has the oil markets and the broader energy sector plummeting. Oil prices have shed nearly 20% in four weeks, but it's hard to say where the bottom may be with the outbreak still growing. OPEC tried to get ahead of this situation. Although the cartel and its partners announced production cuts in December, that was before it was apparent that this would be a potentially serious outbreak. OPEC convened an emergency meeting with Russia in the hopes of announcing additional production cuts of 600,000 BPD. This time, Russia refused. The country needs the revenues. Meanwhile, oil prices could fall further, if the outbreak continues to grow. At present, that looks likely. How far prices fall at this point will be a function of the spread of the virus and OPEC and Russia's eventual response (or lack thereof). The oil cartel isn't expected to take up the issue again until a meeting in March. Be Careful Out There How should you play this as an investor? Very cautiously. This is a black swan event. Former Wall Street trader Nassim Nicholas Taleb coined that phrase to describe rare, outlier events that can't be predicted beforehand, but which have potentially huge consequences. There is precedence for a real economic impact from these sorts of outbreaks. Oil prices fell nearly 20% during the 2002-2003 SARS outbreak, albeit the impact was relatively short-lived because the outbreak was brought under control. But the thing to remember about black swans is that by their very nature, you never know when they will pop up, or how much damage they may ultimately cause. Meanwhile, my January prediction on oil prices fell in record time. Four weeks after I made the prediction the closing price of West Texas Intermediate (WTI) had fallen 20% to close at $49.59/bbl. This one seems far from over though. Stay tuned. Editor's Note: Our colleague Robert Rapier just provided you with valuable insights into the financial markets. But other members of the Investing Daily team can help you make smart investing decisions, too. Consider Jim Pearce, chief investment strategist of our flagship publication, Personal Finance. Jim has a stellar track record at picking profitable investments. These days, he's setting his sights on the so-called Streaming Wars. As consolidation and rapid technological change revolutionize the media industry, many investors are asking: What replaces cable TV? What comes after "cord-cutting"? And more to the point, how can they get rich from it? Those are all good questions and Jim has made it his job to answer them. "The Streaming Wars" are more than just a quadrillion-dollar battle between giant media corporations. They're also an historic opportunity to make money. Want to leverage these trends for market-beating profits? Jim has pinpointed a hidden trade that's poised to reap a windfall. Click here now for details. | 
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