Crude Higher as Coronavirus Cases Slow

WASHINGTON (DTN) -- With the exception of the front-month RBOB contract, oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled higher Tuesday. This came after Chinese health officials indicated the number of new coronavirus cases began to plateau this week, easing some concern over prolonged demand destruction in the world's top crude importer.

Tuesday afternoon, traders also positioned ahead of the weekly release of U.S. commercial crude and product supply data for the week ended Feb. 7. Markets mostly expect crude supplies to have expanded for the third consecutive week, up 2.8 million barrels (bbl), while refinery run rates likely decreased 0.5%. Gasoline stockpiles are seen down 1.2 million bbl and distillate inventories likely decreased 400,000 bbl on the week.

The American Petroleum Institute is due to release their estimates Tuesday at 4:30 p.m. ET with the official inventory report from U.S. Energy Information Administration due out 10:30 a.m. ET Wednesday.

In its latest monthly Short-Term Energy Outlook released Tuesday, EIA forecast a sizable drop in the global crude consumption rate this year linked to the outbreak of the coronavirus in China. The agency downgraded liquid fuels consumption in China to 14.8 million barrels per day (bpd) from February through April, when EIA assumes the effects of travel restrictions will be most acute. That level of consumption is 0.4 million bpd less than forecast in last month's forecast.

"The magnitude and duration of the coronavirus's effects remain highly uncertain, but EIA is reducing its estimates for Chinese and global oil consumption for 2020 as a result of the events. Travel restrictions in China that began in mid-January are disrupting petroleum demand in not only China but also in other countries," said EIA in its commentary.

Market participants now await an update on global demand estimates from Organization of the Petroleum Exporting Countries on Wednesday, followed by a monthly report from Paris-based International Energy Administration on Thursday (2/13).

Tuesday marked the deadliest day in China's Wuhan province -- the epicenter of the 2019N-Cov outbreak, where over 1,000 people now have reportedly died from the respiratory disease. Still, China's top medical advisor, Zhong Nanshan said the number of new confirmed coronavirus cases has slowed from the start of the week -- an early indication the disease is likely to peak in February.

China's President Xi Jinping also attempted to calm the markets on Tuesday, reassuring the foundations of economic growth in the world's second largest economy are solid and any negative impact from the coronavirus outbreak will be short-lived. Global equities rallied on Tuesday, partly bolstered by expectations China's central bank would deliver further stimulus to shield the economy in the coming weeks. Earlier this year, Beijing moved to inject over $115 billion into its financial system amid growing signs of a potential developing pandemic.

Still, analysts point that the lack of decisive action from OPEC and partners led by Russia will continue to weigh on market sentiment in the coming days.

Crude benchmarks plunged to 13-month lows on Monday after Russia pushed back against proposed 600,000 bpd cuts to the existing 1.7 million bpd production agreement to stabilize the market against faltering demand in China.

Most forecasts estimate the global demand drop in the current quarter will be between 500,000 bpd and 3 million bpd, depending on the scale of virus outbreak. NYMEX March West Texas Intermediate futures settled up $0.37 at $49.94 after trading as much as 2% higher earlier in a session. The ICE April Brent contract rose $0.74 to $54.01 bbl settlement.

NYMEX March RBOB futures declined 0.71 cents to $1.5142-gallon settlement and the front-month ULSD contract advanced 1.42 cents to settle at $1.6267 gallon.

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

(BAS)

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