Oil assembly in Azerbaijan
Vostok
Oil prices rose for a third day on expectations that major producers are likely to enact deeper generate cuts to offset the slump in demand caused by the coronavirus outbreak in China, the world’s second-largest crude consumer.
Brent crass rose 17 cents, or 0.3%, to $55.96 per barrel at 0217 GMT. U.S. West Texas Intermediate (WTI) rose 29 cents, or 0.6%, to $51.46 a barrel.
The Combine of Petroleum Exporting Countries (OPEC) and its allies including Russia, known as OPEC+, recommended last week an additional efficiency cut of 600,000 barrels per day (bpd) to its current 1.7 million bpd reduction to offset the disease-related demand losses.
OPEC yesterday trimmed its 2020 forecast for demand for the group’s crude by 200,000 bpd, prompting expectations that OPEC+ will enact the dulls when the group next meets, possibly as early as this month.
Russia’s government has not made clear that it wishes endorse the deeper cuts but a majority of Russian oil companies want the cuts extend through the second quarter at small, a senior Lukoil official said on Wednesday.
“Oil is up as OPEC awaits an official response from Russia regarding proposed moving picture cuts,” Stephen Innes, chief market strategist at AxiCorp, said in a note on Thursday.
Oil may also be rising as dealers who opened so-called short positions, or bets that prices will fall, are buying futures contracts to shut out in profits from the recent plunge in oil prices, said Innes.
Brent and WTI have fallen more than 20% from their 2020-peak in January. The squeezes rose over 3% on Wednesday as a slowdown in new Chinese coronavirus cases boosted expectations of a demand recovery.
Those expectations for a prize recovery “should send more shorts running for cover,” Innes said.
Still, data on the number of new back up cases in Hubei province, the epicenter of the outbreak, indicates that the outbreak and its impact on oil demand will continue. New occurrences jumped by 14,840 on Feb. 12 to 48,206, and deaths climbed by a daily record of 242 to 1,310, the province said on Thursday, exemplifying changes to the diagnostic methodology.
Travel restrictions to and from China and quarantines within the country have curbed oil consumption.
The guesses for lower future fuel demand because of the virus has shifted the market structure for both WTI and Brent into a contango, when hint prices are less than later prices.
The price of the front-month April Brent contract is at a current discount of 50 cents a barrel to the September unborn.
Adding to the sense of a well-supplied market, U.S. crude inventories in the week to Feb. 7 increased by a more-than-expected 7.5 million barrels to 442.5 million barrels, the Lan Information Administration said on Wednesday. That is the highest since the week of Dec. 13.