Crude Futures Decline 5th Week

WASHINGTON (DTN) -- Except for the front-month RBOB contract, oil futures on New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled lower on Friday. Both crude benchmarks were down more than 2% this week after the Organization of the Petroleum Exporting Countries and partners led by Russia failed to unify their position on further supply cuts as a worsening coronavirus epidemic in China continues to erode global demand for crude oil.

Further weighing on the U.S. benchmark, the greenback rallied Friday to a fresh four-month high at 98.571 in afternoon index trade, spurred by larger-than-expected gains in U.S. labor market. Bureau of Labor Statistics reported Friday the U.S. economy added 225,000 new jobs in January, beating market expectations for an increase of 160,000 positions. The national unemployment rate ticked up slightly from a 50-year low to 3.6% as the workforce expanded, while wages rose 0.2% during the month reviewed.

Despite bullish jobs report, U.S. equities turned lower in afternoon trade, with the Dow Jones Industrial Average falling more than 250 points and all major indexes lower in later trading. Declines could be linked to the Federal Reserve announcing Friday coronavirus is increasingly seen as a potential threat to U.S. growth.

The central bank wrote, "Possible spillovers from the effects of the coronavirus in China have presented a new risk to the outlook."

At settlement, NYMEX March West Texas Intermediate futures moved down $0.63 to $50.32 barrel (bbl), while shedding 2.2% in value since last Friday (1/31). ICE April Brent contract retreated $0.46 to $54.47 bbl and posted a steeper weekly decline of 3.7%, reflecting the global risk of the fast-spreading viral disease. NYMEX March RBOB futures advanced 2.59 cents to $1.5239 gallon and posted 1.7% weekly gain and front-month ULSD contract declined 2.21 cents to $1.6433 gallon.

The market narrative continues to be dominated by the headlines around a fast-spreading coronavirus outbreak in China, with death tolls quickly approaching that of the SARS pandemic in 2003.

Singapore announced Friday the risk profile of a new virus already reached the scale of SARS after additional cases of the infection from people that did not travel to China were reported this week.

Japan reported 41 new coronavirus infections on a quarantined cruise liner where more than 3,000 people remain under lockdown. In China, the number of infections soared to 31,000 and the death toll surpassed 637.

Goldman Sachs economists now see the magnitude of the current demand shock in Asia due to the disease will be on par with the financial crisis of 2008. In China, investment banks forecast consumption to fall by as much as 2 million to 3 million barrels per day (bpd) in the current quarter.

Despite the demand shock, the OPEC+ coalition struggled to agree on additional production cuts this week, with talks reportedly held up by the Russian delegation. After three days of discussions of the OPEC+ Joint Technical Committee in Vienna, the panel reportedly recommended a deeper cut of 600,000 bpd to begin in April and run through June.

Russia's Foreign Minister Sergei Lavrov expressed his verbal support for the cuts -- a position that was later rebuffed by the country's energy minister who once again said Moscow needs more time to assess the crisis. With no imminent action pending, OPEC+ ministers have kept their March 5-6 meeting in Vienna as scheduled for now, instead of moving it forward.

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

(BAS)

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