Oil prices gain as new cases of coronavirus drop in China

Abu Dhabi: A drop in new coronavirus cases in China along with potential action from Opec+ in the form of more production cuts is bringing optimism back into oil markets, analysts say.

Global oil markets on Friday saw Brent trading at $57.32 and West Texas Intermediate on $52.05, both of which were up on the week, reversing a slide that saw prices closing on five straight weeks of losses.

“Oil prices managed to stage something of a recovery last week despite downgrades to demand expectations from major forecasting agencies. Brent futures gained 5.2%, snapping five consecutive weeks of decline,” said Edward Bell, commodity analyst at Emirates NBD.

“Commodities in general were bid higher as differing projections on the number of Covid-19 cases hit the markets. For oil, the rally largely appears to be on the back of expectation that Opec+ will indeed take some action to stem the decline in prices,” he added.

“So far though there has been no official Opec+ announcement to endorse further production cuts or even an extension of the current level of deeper cuts that are due to expire at the end of March,” he said.

Bell said a lack of clarity from Opec+ on what the body’s next decision will be could send oil prices back down again.

“The longer the market waits for a clear signal from Opec+ on how it plans to deal with Covid-19’s impact on demand, the greater the risk oil could slip again.

“While there are signs the pace of the outbreak is slowing and some Chinese refineries have reportedly been bargain hunting given the drop in prices, a forceful message from Opec+ would help to stabilise a floor under oil prices,” he added.

And with the International Energy Agency (IEA) and Opec both reversing their demand forecasts for 2020 in their latest monthly reports, Bell said this could help nudge Opec+ in favour of more production cuts.

“Both the IEA and Opec’s analysis body seemed to give the producers’ bloc room to cut output by cutting their demand forecasts for 2020

“The IEA expects oil demand growth to come in at just 825k barrels per day this year, its slowest pace since 2011,” he added.

“Annual demand growth will be negative in Q1 (first quarter of 2020), the first contraction since the global financial crisis. Opec cut its outlook for 2020 demand by 200k b/d, expecting growth of just 990k b/d this year.”