Oil prices mixed as demand concerns outweigh output cut expectations

OPEC earlier lowered its 2020 forecast for demand for the group’s crude by 200,000 barrels per day. (Reuters)
Short Url
Updated 13 February 2020

Oil prices mixed as demand concerns outweigh output cut expectations

  • Oil demand in China, the world’s second-largest crude consumer, has plunged because of travel restrictions to and from the country
  • OPEC earlier lowered its 2020 forecast for demand for the group’s crude by 200,000 bpd

SEOUL: Oil prices were mixed on Thursday as concerns about falling demand caused by travel restrictions tied to the coronavirus outbreak in China, the world’s biggest oil importer, outweighed expectations of supply cuts from major producers.
Brent crude fell 8 cents, or 0.1 percent, to $55.71 per barrel at 0533 GMT. US West Texas Intermediate (WTI) rose 7 cents, or 0.1 percent, to $51.24 a barrel. Brent rose 3.2 percent on Wednesday while WTI gained 2.5 percent as a slowdown in new Chinese coronavirus cases boosted expectations of a demand recovery.
However, Hubei province, the epicenter of the outbreak, said on Thursday the number of new confirmed cases there jumped by 14,840 on Feb. 12 to 48,206, and deaths climbed by a daily record of 242 to 1,310, reflecting changes to the diagnostic methodology.
Oil demand in China, the world’s second-largest crude consumer, has plunged because of travel restrictions to and from the country and quarantines within it. Another Chinese oil refiner China National Chemical Corp. said on Thursday it would close a 100,000 barrel-per-day plant and cut processing at two others amid falling fuel demand.
“Oil’s rally lost some momentum after China reported a sizable jump in new virus cases,” said Edward Moya, senior market analyst at OANDA.
However, even with the increase in cases pressuring crude, “oil prices are seeing some support from progress that the Russians may finally sign off on the OPEC+ additional production cuts,” he said.
The Organization of Petroleum Exporting Countries (OPEC) and its allies including Russia, known as OPEC+, recommended last week an additional output 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 lowered its 2020 forecast for demand for the group’s crude by 200,000 bpd, prompting expectations that OPEC+ may enact the cuts when the group next meets, possibly as early as this month.
Russia’s government has not made clear that it will endorse the deeper cuts but a majority of Russian oil companies want the cuts extend through the second quarter at least, a senior Lukoil official said on Wednesday.
Brent and WTI have fallen more than 20 percent from their 2020-peak in January because of the disease outbreak.
The expectations for lower future fuel demand because of the virus has shifted the market structure for both Brent and WTI into a contango, when prompt prices are less than later prices.
The front-month Brent futures contract, for April, is currently at a 55-cent discount to the September future.
Reflecting a well-supplied market, US crude inventories in the week to Feb. 7 increased by a more-than-expected 7.5 million barrels to 442.5 million barrels, the Energy Information Administration said on Wednesday. That is the highest since the week of Dec. 13.


Saudi minister: OPEC+ will take responsible approach to virus

Updated 26 February 2020

Saudi minister: OPEC+ will take responsible approach to virus

  • Saudi Arabia supports the further oil production cut, but Russia is yet to announce its final position on the matter

RIYADH: Saudi Arabia’s energy minister said on Tuesday he was confident that OPEC and its partner oil-producing nations, the so-called OPEC+ group, would respond responsibly to the spread of the coronavirus.

He also said Saudi Arabia and Russia would continue to engage regarding oil policy.

“Everything serious requires being attended to,” the minister, Prince Abdul Aziz bin Salman, told reporters at an industry conference in Riyadh.

An OPEC+ committee this month recommended the group deepen its output cuts by an additional 600,000 barrels per day.

Saudi Arabia supports the further oil production cut, but Russia is yet to announce its final position on the matter.

The minister said he was still talking with Moscow and that he was confident of Riyadh’s partnership with the rest of the OPEC+ group.

“We did not run out of ideas, we have not closed our phones. There is always a good way of communicating through conference calls,” he said.

Regarding the coronavirus, which has impacted OPEC member Iran, he said OPEC+ members should not be complacent about the virus but added he was confident every OPEC+ member was a responsible and responsive producer.

The flu-like SARS-CoV-2 virus, which first broke out in China, has now spread to more than 20 countries.

“Of course there is an impact and we are assessing, but we’ll do whatever we can in our next meeting and we’ll address that issue,” UAE Energy Minister Suhail Al-Mazrouei said at the same industry conference.

Saudi Aramco CEO Amin Nasser on Monday said he expected a short-lived impact on oil demand.

“We think this is short term and I am confident that in the second half of the year there is going to be an improvement on the demand side, especially from China,” he said.

Oil climbed on Tuesday as investors sought bargains after crude benchmarks slumped almost 4 percent in the previous session, although concerns about the global spread of the virus capped gains.