Oil Snaps Five-Day Slide as Investors Weigh Virus Impact
Saudi Arabia is “closely monitoring” the effect of the Chinese coronavirus outbreak on the oil market.
(Bloomberg) -- Oil rebounded from its lowest level since mid-October as investors weighed the extent to which China’s coronavirus would hurt fuel demand.
Futures recovered 0.6% in New York on Tuesday after losing more than 9% across five straight days of declines. Investors found comfort in the possibility of the Organization of Petroleum Exporting Countries and its allies extending and deepening production cuts at its March meeting to stave off any supply imbalances if the coronavirus outbreak worsens.
There’s some short-covering “after the worst-case demand scenario got priced in,” said John Kilduff, a partner at Again Capital LLC in New York. Sentiment improved after the sell off captured the attention of Saudi Arabia and China ramped up efforts to contain the outbreak, he said. “They’ve shown the market they’re not going to take this lying down.”
Chinese authorities have locked down cities with a combined 50 million people around the outbreak’s epicenter in Wuhan, and will stop individuals traveling to Hong Kong. Fatalities increased to 106 in China, and infections have been reported throughout Asia as well as in the U.S., France, Canada and Germany. The U.S. Centers for Disease Control and Prevention advised travelers to avoid all non-essential trips to China.
China’s expanded efforts to contain the outbreak coupled with the response from Saudi Arabia, the world’s biggest oil exporter, acted as “a support to prices and a recognition that demand could be lower going into the second quarter,” said Marshall Steeves, energy analyst at IHS Markit.
West Texas Intermediate for March delivery rose 34 cents to $53.48 a barrel on the New York Mercantile Exchange. The U.S. benchmark has lost 12% so far in January, set for the biggest monthly decline since May.
Brent for March settlement rose 19 cents to $59.51 a barrel on the London-based ICE Futures Europe exchange, putting its premium over WTI at $6.03 a barrel.
Flight activity in the five airports closest to Wuhan plunged 48% from the previous week, while aviation traffic in Shanghai and Shenzhen also fell, even though Lunar New Year holidays should have increased it, according to RBC Capital Markets. Profits from producing jet fuel in Asia fell to the lowest in nearly four years.
Despite the gains on Tuesday, investors remain cautious of the pathogen’s potential to destabilize oil demand. “There’s a wait-and-see attitude that seems to be driving markets right now,” said Steeves. “The virus fears are really a question of how much demand destruction occurs and how long that lasts,” he said.
See also: Oil Experts See $5 Downside, OPEC+ Response as Virus Spreads
With traders focused on demand, oil markets have largely shrugged off a political crisis in Libya that has choked off the OPEC nation’s exports. Eastern-based General Khalifa Haftar, the military leader whose faction controls the oil-rich east and south of the nation, blockaded the country’s ports earlier this month while haggling over a peace settlement with the national government.
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--With assistance from James Thornhill, Ann Koh and Grant Smith.
To contact the reporter on this story: Jackie Davalos in New York at jdavalos10@bloomberg.net
To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Catherine Traywick, Pratish Narayanan
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