Oil headed for its first weekly gain since early January after prices found a floor amid uncertainty over how the coronavirus will play out and whether OPEC+ will respond with additional production cuts.
Crude has staged a recovery since closing at a 13-month low Monday, despite a sharp increase in the number of cases reported in China’s Hubei province after authorities changed their method for counting infections. The World Health Organization said the spike doesn’t necessarily reflect a sudden surge in new infections, with many of the added cases dating back days and weeks.
The three big oil forecasters — the Organization for Petroleum Exporting Countries, the International Energy Agency and the U.S. Energy Information Administration — have all cut their demand estimates due to the virus but there’s a wide divergence between them. The other big uncertainty is whether Russia will back an OPEC+ proposal to temporarily deepen output reductions by 600,000 barrels a day in the second quarter.
The recent strength in oil prices could signal that much of the coronavirus-driven news has been priced in, Stephen Innes, Asia Pacific market strategist at AxiCorp, said in a note. “Barring an acceleration of new infections, markets should remain relatively supported until we get the first-look data surrounding supply chains and demand contraction knock-on effects in China.”
West Texas Intermediate crude for March delivery rose 0.1% to $51.48 a barrel on the New York Mercantile Exchange as of 7:15 a.m. in London after closing 0.5% higher on Thursday. It’s up 2.3% since Feb. 7, set for the first weekly gain since Jan. 3.
Brent for April settlement was little changed at $56.35 a barrel on the ICE Futures Europe exchange, and has risen 3.5% so far this week. The global benchmark for crude traded at a $4.65 premium to WTI for the same month.
The International Energy Agency is the most bearish of the three forecasters. It’s predicting an oil demand contraction of 435,000 barrels a day this quarter, which would be the first drop in consumption in a decade. That outlook is 1.3 million barrels a day lower than the IEA’s estimate a month ago, a downgrade three times as big as OPEC’s. The EIA is in the middle.
Meanwhile, Russia continues to leave its decision on whether to back the cartel’s deeper production cuts hanging, keeping the market in limbo.
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