U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed sharply lower last week as worries over the coronavirus’ impact on global demand continued to weigh on prices. Both futures contracts posted their fourth consecutive weekly loss.
Major airlines across the globe are suspending direct flights to and from mainland China causing jet fuel demand to plunge. This is also hurting refiners’ profit margins.
U.S. Energy Information Administration Weekly Inventories Report
On Wednesday, the EIA said crude stocks rose by more than seven times market expectations, gaining 3.5 million barrels in the week to January 24. Gasoline stocks rose to a record high, increasing for a 12th consecutive week to 261.1 million barrels, the EIA said.
Two factors are likely to drive the price action this week. The first is bearish, the second is neutral.
On the bearish side, the spread of the coronavirus around the world is likely to cap gains and keep downside pressure on the market. From limited factory activity in China to a slowdown in international travel to and from the country, the pressure will remain on demand.
On the neutral side, according to sources, OPEC and its allies including Russia want to extend oil production cuts until at least June from March, and may deepen the reductions, should demand for oil in China be significantly reduced by the spread of the virus.
It’s a story that should be watched over the near-term, but the move may not be enough to stabilize prices for a long-period of time. However, the announcement could trigger a short-covering rally.
OPEC and non-OPEC’s Joint Technical Committee (JTC) has scheduled a meeting over February 4-5 in Vienna to assess the impact of China’s new coronavirus on oil demand, OPEC+ sources told Reuters.
The technical panel is likely to make a recommendation on whether to extend current oil supply curbs beyond March or to implement deeper output cuts, the sources said.
OPEC officials are considering their options on how best to deal with the potential impact from the spread of the coronavirus, which has killed more than 300 people and caused oil prices to slide.
This article was originally posted on FX Empire
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