Oil rebounds, but markets ‘twitchy’ over China virus impact on demand

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Reuters
KEY POINTS
  • Brent crude futures were up 24 cents, or 0.4%, at $62.28 a barrel by 0456 GMT after falling 1.9% the previous session. For the week, Brent is down 4%.
  • U.S. West Texas Intermediate futures were 24 cents, or 0.4%, higher at $55.83 a barrel. The contract fell 2% on Thursday and is 5% lower for the week.
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Jean-Paul Pelissier | Reuters

Oil prices edged up on Friday, helped by a decline in U.S. crude stockpiles, but were on track for to fall up to 5% for the week on worries that the China coronavirus that has killed 25 so far may spread, curbing travel, fuel demand and economic prospects.

Brent crude futures were up 24 cents, or 0.4%, at $62.28 a barrel by 0456 GMT after falling 1.9% the previous session. For the week, Brent is down 4%.

U.S. West Texas Intermediate futures were 24 cents, or 0.4%, higher at $55.83 a barrel. The contract fell 2% on Thursday and is 5% lower for the week.

″(The) virulent sell-off on the … flu scare was mollified by a timelydecline in U.S. crude inventories,” said Stephen Innes, market strategist at AxiTrader.

“Oil prices could remain on a slippery slope as traders remain incredibly twitchy about the effects the coronavirus outbreak could have on Chinese GDP and air travel more broadly,” said Innes.

The virus has infected more than 800 so far in China, with 25 dead as of Thursday, according to China’s National Health Commission. The World Health Organisation has declared the situation an emergency, but stopped short of declaring the epidemic of international concern.

Most of the cases are in the central Chinese city of Wuhan, where the virus is believed to have originated late last year, though cases have now been found in at least seven other countries.

Offering some support for prices was news that U.S. crude oil and distillate inventories fell last week, the Energy Information Administration said on Thursday.

Though they failed to match analysts’ expectations in a Reuters poll of a 1 million barrel drop, crude inventories did decline by 405,000 barrels in the week to Jan. 17, government data showed.

Elsewhere, refined fuel exports from India jumped in December as its slowing economy crimped domestic demand.

India’s refined fuel exports rose 24.2% in December year-on-year to 6.46 million tonnes, the fastest growth since October 2016, official data released on Thursday showed.

Oil slump deepens as China virus casts cloud over fuel demand, economy

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Reuters
KEY POINTS
  • Brent crude futures were down 82, or 1.3%, to $62.39 a barrel by 0400 GMT, and earlier dropped to the lowest since Dec. 4 after falling 2.1% the previous session.
  • U.S. West Texas Intermediate futures fell 86 cents, or 1.5%, to $55.88 a barrel after earlier falling to the lowest since Dec. 3. The contract declined 2.7% on Wednesday.
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A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.
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Oil prices fell to their lowest in seven weeks on Thursday, sliding more than 1% on concern that the spread of a respiratory virus from China may lower fuel demand if it stunts economic growth in an echo of the SARS epidemic nearly 20 years ago.

Brent crude futures were down 82, or 1.3%, to $62.39 a barrel by 0400 GMT, and earlier dropped to the lowest since Dec. 4 after falling 2.1% the previous session.

U.S. West Texas Intermediate futures fell 86 cents, or 1.5%, to $55.88 a barrel after earlier falling to the lowest since Dec. 3. The contract declined 2.7% on Wednesday.

The so-called novel coronavirus has killed 17 people through respiratory illness since it emerged late last year in Wuhan, a city of 11 million people in central China. Nearly 600 cases have been confirmed and city authorities have shut transport networks, urging residents not to leave to prevent the contagion spreading.

The potential for a pandemic has stirred memories of the Sudden Acute Respiratory Syndrome epidemic in 2002-2003, which also started in China, and dented economic growth and led to a slump in travel.

“Downside demand risks due to the Wuhan virus appear to be a growing concern for the market, and understandably so, with any clampdown on travel likely to weigh on fuel demand,” ING Research said.

Overseas airlines, along with rail operators from Hong Kong and elsewhere have also started shutting down connections to Wuhan, essentially now in lockdown.

“We estimate a price shock of up to $5 (a barrel) if the crisis develops into a SARS-style epidemic based on historical oil price movements,” JPM Commodities Research said in a note.

The U.S. bank maintained its forecasts for Brent to average $67 a barrel in the first quarter and $64.50 a barrel throughout 2020.

Elsewhere, amid all the concern about hits to demand, supply remains plentiful.

U.S. crude stockpiles rose last week by 1.6 million barrels, against expectations of a drop, the American Petroleum Institute said late on Tuesday.

Brazil also produced more than a billion barrels of oil in 2019, a first for the South American nation, the national oil regulator said on Wednesday.

Meanwhile China released data on Thursday showing its gasoline exports are surging, rising nearly a third last year as more new refineries are opened.

Oil declines as market surplus forecast counters Libya worries

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Reuters
KEY POINTS
  • Brent crude was down 24 cents, or 0.4%, at $64.35 a barrel at 0309 GMT, after dropping 0.3% on Tuesday.
  • U.S. oil fell 29 cents, or 0.5%, to $58.09 a barrel, having declined 0.3% the day before.
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Jean-Paul Pelissier | Reuters

Oil prices eased on Wednesday, extending declines as the International Energy Agency (IEA) forecast a market surplus in the first half, helping ease concerns about disruptions that have slashed Libya’s crude output.

Brent crude was down 24 cents, or 0.4%, at $64.35 a barrel at 0309 GMT, after dropping 0.3% on Tuesday. U.S. oil fell 29 cents, or 0.5%, to $58.09 a barrel, having declined 0.3% the day before.

The head of the IEA, Fatih Birol, said on Tuesday he expects the market to be in surplus by a million barrels per day (bpd) in the first half of this year.

“I see an abundance of energy supply in terms of oil and gas,” Birol told the Reuters Global Markets Forum, while he was attending World Economic Forum meeting in Davos, Switzerland.

“It’s the reason that recent incidents we have seen – with the Iranian general killed, Libya unrest – didn’t boost international oil prices,” Birol said, referring to the U.S. killing of an Iranian commander and retaliation by Tehran that sent prices briefly soaring earlier this month.

Libya’s National Oil Corp on Monday declared force majeure on the loading of oil from two major oil fields after the latest development in a long-running military conflict.

“Market participants are already starting to fade this story – believing that this is a transitory outage,” said Helima Croft, global head of commodity strategy at RBC Capital Markets.

However, Croft warned that the “multi-year proxy war leaves Libyan production at high risk for extended outages and there are no indications that the country is close to turning the corner.”

Unless oil facilities quickly return to operation Libya’s oil output will be reduced from about 1.2 million barrels per day (bpd) to just 72,000 bpd.

Still, U.S. crude production in large shale deposits is expected to rise to record highs in February, although the pace of increase is likely to be the lowest in about year, the U.S. Energy Information Administration (EIA) said on Tuesday.

Away from oil fundamentals, markets have been roiled by the emergence of a new strain of a coronavirus out of China amid concern about the impact of a possible pandemic on economic growth.

Oil prices ease as supply risk concerns fade

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Reuters
KEY POINTS
  • Brent crude was trading down 30 cents, or 0.5%, at $64.90 per barrel by 0318 GMT, after rising to their highest in more than a week on Monday.
  • U.S. West Texas Intermediate crude futures were down 14 cents, or 0.2%, at $58.40 a barrel.
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A Petrobras oil platform floats in the Atlantic Ocean near Guanabara Bay in Rio de Janeiro.
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Oil prices eased on Tuesday as investors appeared to shrug off earlier supply concerns following a force majeure declared by Libya on two major oilfields amid a military blockade.

Brent crude was trading down 30 cents, or 0.5%, at $64.90 per barrel by 0318 GMT, after rising to their highest in more than a week on Monday. U.S. West Texas Intermediate crude futures were down 14 cents, or 0.2%, at $58.40 a barrel.

“Every time we get a big geopolitical event, the market spikes up but everybody looks at that as a chance of a selling opportunity,” said Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo.

Two major oilfields in southwest Libya began shutting down on Sunday after a pipeline was closed off, potentially reducing national output to a fraction of its normal level, the country’s National Oil Corp (NOC) said.

A document sent to oil traders and seen by Reuters on Monday said the NOC had declared force majeure – a waiver on contractual obligations – on crude loadings from El Sharara and El Feel oilfields in Libya’s southwest.

If Libyan exports are halted for any sustained period, storage tanks will fill within days and production will slow to 72,000 barrels per day (bpd), an NOC spokesman said. Libya has been producing around 1.2 million bpd recently.

Anti-government unrest in Iraq, another major oil producer, also had initially supported oil prices, but officials later said production in southern oilfields has not been affected by the unrest.

Any supply disruptions could be offset by increased output from the Organization of the Petroleum Exporting Countries (OPEC), which could limit the impact on global oil markets, the head of Japan’s petroleum industry body said.

“We are caught in this ($65 per barrel) trading range,” Nunan said. “Anything below and OPEC is going to have a tough time balancing their budgets … and anything above, shale (output) will rebound.”

Another factor reassuring the market is OPEC spare capacity, which stands in excess of 3 million bpd, of which the bulk sits in Saudi Arabia, analysts from ING Economics said in a note.

Adding to supply, Guyana exported its first-ever shipment of crude on Monday, marking the tiny South American nation’s debut as an oil exporter.

Meanwhile, Bank of America Global Research raised its 2020 oil price forecasts on Monday, citing risks to supply from the Middle East, an improving demand outlook and higher OPEC+ compliance to deepen output cuts.

Oil jumps to highest in more than a week after Libyan shutdowns

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Reuters
KEY POINTS
  • Brent crude futures were up by 74 cents, or 1.1%, to $65.59 by 0331 GMT, having earlier reached $66.00 a barrel, the highest since Jan. 9.
  • The West Texas Intermediate contract was up by 58 cents, or 1%, at $59.12 a barrel, after rising to $59.73, the highest since Jan. 10.
  • In the latest development in a long-running conflict in Libya, where two rival factions have claimed the right to rule the country for more than five years, the National Oil Corporation (NOC) on Sunday said two big oilfields in the southwest had begun shutting down after forces loyal to the Libyan National Army closed a pipeline.
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An Iraqi worker gauges gas emissions from an oil pipe at the Daura oil refiner
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Oil prices rose to their highest in more than week on Monday after two large crude production bases in Libya began shutting down amid a military blockade, setting the stage for crude flows from the OPEC member to be cut to a trickle.

Brent crude futures were up by 74 cents, or 1.1%, to $65.59 by 0331 GMT, having earlier reached $66.00 a barrel, the highest since Jan. 9. The West Texas Intermediate contract was up by 58 cents, or 1%, at $59.12 a barrel, after rising to $59.73, the highest since Jan. 10.

In the latest development in a long-running conflict in Libya, where two rival factions have claimed the right to rule the country for more than five years, the National Oil Corporation (NOC) on Sunday said two big oilfields in the southwest had begun shutting down after forces loyal to the Libyan National Army closed a pipeline.

“If this sort of disruption endures, it’s meaningful … the market is right to be reacting with a bullish tone,” said Lachlan Shaw, head of commodity research, at National Australia Bank in Melbourne.

“It just continues to emphasise, notwithstanding that the world market is clearly in surplus and there are plenty of stocks, the fact is the market still depends on a number of key regions that have heightened geopolitical risk.”

Oil prices had fallen back in the last two weeks. After the outbreak of hostilities between the United States and Iran at the beginning of the year triggered a jump, both sides took steps to pull back from conflict, calming the market’s mood.

If exports are halted for any sustained period, tanks for storage will fill within days and production will slow to 72,000 barrels per day (bpd), an NOC spokesman said. Libya has been producing around 1.2 million bpd recently.

Also on Sunday, foreign countries agreed at a summit in Berlin on Sunday to shore up a shaky truce in Libya, even as the talks were overshadowed by the latest blockade.

German Chancellor Angela Merkel told reporters that the Berlin summit, attended by the main backers of the rival Libyan factions, had agreed that a tentative truce in Tripoli over the past week should be turned into a permanent ceasefire to allow a political process to take place.