Oil fell towards $56 a barrel on Tuesday, declining for a third session, as concerns about the spread of the coronavirus and its impact on oil demand outweighed OPEC output cuts and Libyan supply losses.
Crude fell almost 4% on Monday, with other commodities also posting losses while U.S. and European equities suffered their steepest declines since mid-2016 on concern the coronavirus outbreak could turn into a pandemic.
“The Covid-19 virus and resulting risks to demand cannot be expected to disappear from the news any time soon,” said Commerzbank analyst Eugen Weinberg.
South Korea aims to test more than 200,000 members of a church at the centre of a surge in coronavirus cases. The virus is also spreading in Europe and the Middle East.
Concern about the demand impact from the virus has pushed down Brent crude by almost $10 a barrel this year despite the involuntary shutdown of most of Libya’s output as well as a supply pact between the Organization of the Petroleum Exporting Countries (OPEC) and its allies.
Prices received further support as lawmakers based in areas of eastern Libya on Monday said that they would not participate for now in peace talks.
“Libyan peace talks appear to have taken a further blow with both sides announcing the end of their participation, pointing to lost crude volumes from the country carrying on for now,” JBC Energy analysts said in a report.
However, oil could come under more pressure from the latest U.S. supply reports.
Crude inventories are expected to rise for a fifth week running. The first of this week’s two supply reports, from the American Petroleum Institute (API), is due at 2130 GMT.
Potential support for prices could also come from OPEC and allies including Russia, which are considering whether to curb output further to offset slowing demand. However, scepticism is growing about the chance of further action.
“Doubts are emerging about the willingness of OPEC+ to extend and expand the necessary production cuts,” said Commerzbank’s Weinberg. The producers are due to meet in Vienna over March 5-6 to decide policy.
Saudi Arabia’s energy minister on Tuesday said that OPEC+ should not be complacent about the coronavirus. But Russia, key to any deal, has yet to announce its position on further curbs.
Oil steadied on Tuesday as investors sought bargains after crude benchmarks slumped almost 4% in the previous session, although concerns about the coronavirus spreading out of China denting major economies and curbing fuel demand capped gains.
Brent crude rose 19 cents, or 0.3%, to $56.49 a barrel by 0436 GMT, after slipping 3.8% on Monday, the largest single-day price fall since Feb. 3.
U.S. crude futures gained 17 cents, or 0.3%, to $51.60, recovering from a 3.7% drop in the previous session.
“Because we’ve seen a very significant fall in case of West Texas, from above $60 to touch below $50 (over the past six weeks), I think oil has largely reflected a lot of risk, unlike other markets,” Michael McCarthy, chief market strategist at CMC Markets, told Reuters over the phone.
Crude markets are also close to an important technical support level between $49.50 and $50 for WTI and between $54.50 and $55 for Brent, McCarthy said.
“For this week, key factors are coronavirus, inventory data and the technical picture,” he said.
Demand concerns savaged prices for oil and a whole swathe of commodities on Monday, while both U.S. and European equities suffered their steepest losses since mid-2016.
Asian share markets were trying to stabilize on Tuesday after a wave of early selling petered out and Wall Street futures managed a solid bounce.
In the United States, crude oil inventories were seen building for a fifth straight week, while refined products likely fell, a preliminary Reuters poll on the expectations for the week ended on Feb. 21 showed on Monday.
Countries around the world are stepping up efforts to prevent a pandemic of the flu-like SARS-CoV-2 virus originating from China late last year that has now infected more than 80,000 people, 10 times more than the SARS coronavirus of 2002/2003.
“Fears that the rapidly-spreading coronavirus outside of China could lead to a bigger-than-anticipated impact on global economy and oil demand will likely keep weighing on market sentiment,” Satoru Yoshida, a commodity analyst with Rakuten Securities said.
Saudi Aramco expects the coronavirus impact on oil demand to be short-lived, however, and for consumption to rise in the second half of the year, Chief Executive Amin Nasser told Reuters on Monday.