Oil Futures Sink on Supply Build

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved sharply lower Wednesday. West Texas Intermediate retreated to a seven-week low settlement on concerns over lost fuel demand linked to the coronavirus outbreak in China and expectations for a weekly build in U.S. refined product supplies.

Wednesday afternoon, traders positioned ahead of the weekly rundown of supply data on U.S. crude and petroleum inventories which was delayed one day due to the Martin Luther King, Jr. holiday Monday. Market consensus calls for another large increase in gasoline and distillate fuel supply to have occurred last week while crude stocks are seen to have fallen. Gasoline inventories are expected to have built by 4.1 million barrels (bbl) during the week ended Jan. 17 and distillate fuels to have expanded 2.1 million bbl. Both products posted massive week-on-week increases for two weeks running in ushering in 2020, building by a combined 29.3 million bbl. In contrast, crude oil stocks are projected to have decreased for a second consecutive week, down about 2 million bbl from week prior.

The American Petroleum Institute will release its weekly report at 4:30 p.m. EST, while U.S. Energy Information Administration data is due out 11 a.m. EST Thursday.

In the market-on-close trade, NYMEX March WTI futures plunged $1.64 to $56.74 bbl, with declines accelerating post-settlement. ICE March Brent futures settled down $1.38 to a seven-week spot low $63.21 bbl. NYMEX February RBOB futures dropped more than 3.5% on the session to $1.5796 gallon -- the lowest settlement since Dec. 3, and the front-month ULSD contract fell 2.9 cents at $1.8002 gallon, paring a decline to a $1.7770 nearly five-month low on the spot continuous chart.

The oil complex again came under aggressive selling Wednesday on concern over global fuel demand amid a virus outbreak in China that has quickly spread beyond its borders. Chinese health authorities declared a quasi-quarantine Wednesday in the city of Wuhan -- the epicenter of a new coronavirus outbreak that sickened more than 500 people and took 17 lives, according to the latest estimates. Starting Thursday, Chinese authorities declared a moratorium on all travel in and out of Wuhan. Wuhan is a commercial city of 11 million people located midway between Beijing and Hong Kong.

The deadly outbreak will most certainly affect demand for jet fuel in the coming weeks, with a string of flight cancellations around the globe reported Wednesday.

An emergency committee of the World Health Organization was scheduled to meet Wednesday in Geneva about whether the outbreak of the new virus constitutes a public-health emergency of international concern.

Contagious illness can present a set of downside risks to global economic growth and fuel demand, should it develop into an epidemic of SARS-like proportions as experienced in 2002-2003. Goldman Sachs said in a note Wednesday morning global oil demand could fall by 260,000 barrels per day (bpd) if the virus reaches the scale of the SARS pandemic.

Wednesday's lower settlements also came after the International Monetary Fund trimmed its economic growth forecast in both the U.S. and China, heightening fears over further deceleration in oil demand this year.

Liubov Georges can be reached at luibov.georges@dtn.com


Liubov Georges