Oil gets coronavirus rout reprieve on OPEC official reassurances

Saudi-led OPEC has yet to convince ally Russia to agree to deeper output cuts to counter coronavirus fallout.

Saudi oil flame
OPEC Secretary-General Mohammad Barkindo said the group and its allies are showing a 'renewed commitment' to reaching an agreement next week that will stabilise oil markets [File: Simon Dawson/Bloomberg]

Oil eased its downward dive as investors weighed reassurance from OPEC’s top official that the group will stabilize markets with fears that a coronavirus will wreak havoc on economic growth.

Futures recovered about half of their 5.9% slide in New York in a brief reprieve from their sell-off after Secretary-General Mohammad Barkindo said the group and its allies are showing a “renewed commitment” to reaching an agreement next week that will stabilize oil markets. The S&P 500 and Dow Jones Industrial Average indexes pared declines after sinking as much as 10% from all-time highs set this month as the coronavirus spread outside of China.

“The fast-evolving impacts of the virus mean the challenge is akin to catching a falling knife,” Bill Farren-Price, a director at consultant RS Energy Group, now part of Enverus, said in an email. “Agree too-small a cut and risk undermining credibility, or over-tighten the market and boost oil prices just at the time when the global economy is flirting with a downturn.”

Futures eased some losses after dropping below $46 a barrel on Thursday

Oil has fallen more than 22% this year as the virus hit a market already awash with supply. Investors are assessing whether the Organization for Petroleum Exporting Countries and its allies will be able to agree on deeper output cuts at a meeting in Vienna next week. Saudi Arabia is reducing March crude supply to China by 500,000 barrels a day due to lower demand, Reuters reported, citing people familiar.

Oil could fall below $30 a barrel if OPEC+ fails to agree a production cut, Standard Chartered Plc analysts Emily Ashford and Paul Horsnell wrote in a report. Russia has so far resisted pressure from Saudi Arabia for an OPEC+ agreement to cut production further as the virus hits demand.

West Texas Intermediate futures fell 3.1% to $47.21 a barrel as of 1:01 p.m. local time on the New York Mercantile Exchange, while Brent lost 2.5% to $52.12 on ICE Futures Europe.

Though prices have fallen, not all indicators are showing weakness. The April Brent contract, which will expire on Friday, is trading at a premium of about 50 cents to May, indicating supply tightness in the North Sea. That’s despite a nosedive in so-called time-spreads further down the futures curve, with the closely-watched December 2020-2021 differential at the weakest in more than a year on Thursday, highlighting the market’s demand concerns.

Other market drivers

  • Gasoline futures fell 3.6% to $1.403.
  • The Trump administration is ready to unleash the full impact of sanctions on Chevron Corp.’s operations in Venezuela as the U.S. seeks to further squeeze the Maduro regime.
  • Asian petrochemical producers outside of China are starting to feel the effects of the deadly coronavirus, with companies cutting output as stockpiles swell and profits crash due to waning demand.
  • Exxon Mobil Corp. posted the second-worst reserves-replacement performance in its history as a crucial measure of future production capacity faltered.
  • A tweak to new environmental rules for the shipping industry is just days from taking effect, closing off a loophole for would-be cheats looking to cut their fuel bills.

–With assistance from James Thornhill.

Source: Bloomberg