Oil prices climb on prospects for deeper OPEC+ output cuts

Oil prices edged higher on Thursday, as investors hoped the world’s biggest producers would cut output more, while they largely shrugged off forecasts of slumping demand due to the coronavirus outbreak in top oil importer China.

Brent crude LCOc1 was up 58 cents, or 1.04%, at $56.37 a barrel by 12:20 p.m. ET, while U.S. West Texas Intermediate (WTI) CLc1 was up 40 cents, or 0.8%, at $51.57 a barrel.

U.S. gasoline futures RBc1 jumped more than 1%, supported by outages at Exxon Mobil Corp’s 502,500 barrel-per-day (bpd) Baton Rouge, Louisiana and at Phillips 66’s 285,000-bpd Bayway refinery in Linden, New Jersey.

The Organization of the Petroleum Exporting Countries lowered its 2020 demand forecast for its crude by 200,000 bpd, prompting expectations the producer group and its allies, known as OPEC+, could cut output further.

“The Russians have pretty much signaled that everyone is on board for OPEC+ delivering deeper production cuts,” said Edward Moya, senior market analyst at OANDA in New York.

“Crude’s price action possibly suggests a firm bottom is in place. As long as the coronavirus does not show strong signs that the spreading of the virus is intensifying, WTI crude could make a run towards the mid-$50s.”

Oil demand in China, the world’s second-largest crude consumer, has plunged because of travel restrictions and quarantines.

Hubei province, the center of the outbreak, said on Thursday the number of new confirmed cases there jumped by 14,840 to 48,206 on Feb. 12 and that deaths climbed by a daily record of 242 to 1,310.

Oil refiner China National Chemical Corp said it would close a 100,000 bpd plant and cut processing at two others amid falling fuel demand.

The International Energy Agency (IEA) expects oil demand in the first quarter to fall for the first time in 10 years before picking up from the second quarter. The agency cut its full-year global growth forecast to 825,000 bpd.

“(It’s) worth noting that these forecasters are for now assuming a V-shape recovery in oil demand, with the bulk of the impairment concentrated in Q1, 2020,” BNP Paribas analyst Harry Tchilinguirian told the Reuters Global Oil Forum.

Brent and WTI have fallen more than 20% from their January peak because of the disease outbreak.

“All of the fundamentals are basically negative and even equities are lower and crude oil on the other hand continues to rip higher,” said Bob Yawger, director of futures at Mizuho in New York.

“You can argue that maybe those demand numbers aren’t as bad as the market thought they could be.”

Lower fuel demand expectations have shifted the market structure for both Brent and WTI into a contango – where prompt prices are lower than those for later dates.

 

Reuters

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Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya