Oil gives back early gains, on pace for 6th straight negative session

Oil futures on Tuesday briefly broke a five-day losing streak after OPEC sources said the group and its allies might tighten the market amid fears that the coronavirus which has claimed over 100 lives in China, before once again moving lower.

Brent crude shed 30 cents, or 0.5%, to trade at $59.00 per barrel, after having hit a three-month low of $58.50 on Monday.

U.S. West Texas Intermediate shed 2 cents to trade at $53.13 per barrel. Earlier in the session WTI rose to $53.44. Both contracts are still on track for their worst monthly falls since May.

The United States and other countries warned against travel to China as the coronavirus death toll rose to more than 100 within China and after the virus was detected in more than a dozen other countries.

Japan, one of the world’s top oil buyers, warned about the risks to its economy from the virus, which has turned investors to safe-haven assets such as U.S. Treasuries or gold.

Oil investors are concerned the outbreak could dampen demand for crude and related products against a backdrop of plentiful supply.

In Asia, jet fuel prices have dropped and refiners’ profits for the product have slumped to the lowest in more than 2-1/2 years, while industry analysts are cutting their 2020 forecasts for jet fuel and overall oil demand.

“If air passenger traffic in China declined by half in the first quarter of 2020, it would likely lead to a 300,000 barrels per day (bpd) year-on-year decline in jet-kerosene demand from China,” Barclays said in a note.

The bank said on Tuesday that oil prices could lose $2 per barrel, slipping to $62 per barrel and $57 per barrel on the bank’s full-year forecast for Brent and WTI, respectively.

Saudi Arabia, de-facto leader of the Organization of the Petroleum Exporting Countries, sought to calm market jitters on Monday – urging caution against gloomy expectations on the impact of the virus on the global economy and oil demand.

But OPEC officials have also started weighing their options, which include extending the current oil output cuts until at least June, with the possibility of deeper reductions if oil demand in China is heavily hit by the virus, OPEC sources said.

Meanwhile, Libyan output is down by nearly 75% to just below 300,000 bpd amid the most extensive oil blockade for years.

“Oil producers are ready to act, therefore the bottom cant be far, right?” said Tamas Varga, oil analyst at PVM.

“Especially that there is no sign of normalization of the situation in Libya. The blockade on oil ports continues, storage tanks are full and output is plunging… This is another powerful argument to call the bottom (of the market).”

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