Oil prices moved between gains and losses on Wednesday as worries about the impact of the coronavirus outbreak on demand and a larger-than-expected build in U.S. inventory weighed on prices, but losses were offset by talk that OPEC could extend oil output cuts.
Financial markets that have been hit by the spread of the virus out of China are trying to assess the economic fallout, with the death toll rising to 132 and airlines reducing flights to China.
“Following the outbreak of coronavirus, commodities markets suffered from a technical selloff,” said Michel Salden, senior portfolio manager of Vontobel Asset Management, who argued that oil prices would likely soon rebound.
“While coronavirus might lead to a drop in oil demand equivalent to 200-300,000 barrels per day … all this combined makes this years selloff in oil, -14% from peak, overdone versus the mild correction in equity markets, only down 2% from peak.
British Airways suspended all direct flights to and from mainland China after Britain warned against all but essential travel to the country, and jet fuel demand has slumped in Asia as airlines have cancelled connections.
U.S. crude stocks and gasoline inventories grew more than expected last week as refiners cut runs, the Energy Information Administration said in its weekly report.
Crude inventories rose by 3.5 million barrels in the week to Jan. 24 to 431.7 million barrels, compared with analysts’ expectations in a Reuters poll for a 482,000-barrel rise.
“We have seen a number of refinery maintenance announcements both planned and unplanned over the past week or two, and that is reflected in a setback for refinery operations,” Anthony Headrick, energy market analysts at CHS Hedging LLC in Inver Grove Heights, Minnesota.
The Organization of Petroleum Exporting Countries (OPEC) wants to extend oil production cuts until at least June, from March, and could deepen the reductions should demand for oil in China be significantly reduced by the spread of the virus, OPEC sources said.
OPEC and its allies, including Russia, have been trying to stabilise prices amid questions over the global demand outlook and rising supplies, particularly out of the United States.
“Will deeper OPEC supply curbs provide the panacea for the current oil market malaise? Probably not,” said Stephen Brennock of oil broker PVM. “The oil cartel, therefore, faces an uphill battle to support oil prices.”
Yemen’s Iran-aligned Houthi movement said on Wednesday it had carried out an unspecified military operation on Saudi Aramco sites in the kingdom’s south, but there was no immediate confirmation from Saudi authorities of any attack.