Oil prices were mixed 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.
On Wednesday the U.S. Energy Information Administration said that stockpiles for the week ending Jan. 24 rose 3.5 million barrels. Analysts had been expecting a build of 1.4 million barrels, according to S&P Global Platts.
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.
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.
In the United States, crude oil inventories fell by 4.3 million barrels last week, data from the American Petroleum Institute showed on Tuesday, compared with analyst expectations of a gain of 482,000 barrels.
Gasoline stocks were up by 3.3 million barrels, compared with a forecast gain of 1.3 million barrels in a Reuters poll.
Distillate fuel inventories, which include diesel and heating oil, fell by 141,000 barrels, against expectations of a 1 million barrel drop.