U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed sharply lower last week on concerns that a virus in China may spread, hurting travel and fuel demand. China is the world’s second largest oil consumer so any slowdown in travel would show up on its demand forecasts. The news overshadowed OPEC and its allies’ cuts in supply and an unexpected drop in U.S. weekly inventories.
Corona Virus Update
While the majority of confirmed coronavirus cases and deaths are in mainland China, the virus has also been identified in Japan, South Korea, Taiwan, Thailand, Vietnam, Singapore, Nepal, France, Australia and the U.S.
The World Health Organization (WHO) has so far declined to declare the disease a global health emergency, saying it needs more data. The virus is currently spreading through human-to-human contact and in medical settings, the organization said.
In China, President Xi Jinping on Saturday warned that the spread of the coronavirus presents a “grave situation,” as officials from central China to Hong Kong struggle to stop the spread of the disease that has so far infected more than 1,400 people worldwide and killed 42.
US Energy Information Administration Weekly Inventories Report
Some of the selling pressure on oil was reduced on Thursday after weekly data from the U.S. Energy Information Administration (EIA) showed that U.S. crude supplies fell by 400,000 barrels for the week-ended January 17. Analysts were looking for a drawdown of 100,000 barrels to a 500,000 barrel build. Earlier in the week on Wednesday, the American Petroleum Institute reported an increase of 1.6 million barrels.
The EIA data also showed a supply build of 1.7 million barrels for gasoline, but distillate stocks declined by 1.2 million barrels. Traders were pricing in an increase in supplies of 3.3 million barrels for gasoline and 1.6 million barrels for distillates.
Since the coronavirus conditions worsened over the weekend, we expect the WTI and Brent crude oil markets to open sharply lower. And since it doesn’t look like there is going to be any led up in the spread of the virus despite the shutdown of travel around the world, prices are likely to continue to remain under pressure throughout the week.
This article was originally posted on FX Empire
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