Oil Futures Reverse Up on Tuesday

WASHINGTON (DTN) -- Oil futures on New York Mercantile Exchange and Brent crude on the Intercontinental Exchange turned higher in early trade Tuesday, bolstered by surging equities and expectations for a new round of economic stimulus measures by China, as health authorities struggle to contain the fast-spreading coronavirus in its industrial heartland.

Near 8:00 a.m. ET, NYMEX March West Texas Intermediate futures clawed back $0.89 to $50.46 per barrel (bbl) after plunging to a 13-month low $49.57 spot settlement in the previous session. ICE April Brent contract rallied $0.99 to $54.26 bbl. NYMEX March RBOB futures gained 1.03 cents to $1.5316 gallon and front-month ULSD contract advanced 1.82 cents to $1.6307 gallon.

Despite headlines of the deadliest day in the Wuhan region, global equity markets rose on Tuesday, spurred by optimism China's central bank would deliver further stimulus to shield the economy ravaged by the disease. Earlier this year, Beijing moved to inject over $115 billion into its financial system amid growing signs of a potential developing pandemic.

China's President Xi Jinping offered reassurances on Tuesday that "fundamentals of China's long-term economic development remain unchanged and the impact of the novel coronavirus epidemic on the economy is short-lived." However, the growing number of fatalities in China's Wuhan region is causing concern that the outbreak is yet to have peaked. As of Tuesday, the death toll linked to the viral disease in central China surpassed 1,000 people with over 42,000 infected cases.

Weighed down by fears of lost oil demand because of the spreading virus, crude futures dropped to 13-month lows on Monday as Organization of the Petroleum Exporting Countries and Russia scramble to unify their position on further production cuts.

The technical panel for the 23-nation alliance on Monday recommended an extension of their 1.7 million barrels per day (bpd) production agreement until the end of 2020, and to also deepen those cuts by an additional 600,000 bpd through the second quarter. Russia has reportedly pushed back against the proposal, citing the lack of clear forecasts on China's demand drop. Most estimates, however, suggest crude consumption in the world's second largest economy will drop by at least 500,000 bpd in the current quarter. Worst case scenarios put lost demand in China at 2 to 3 million bpd.

Market participants will get an in-depth analysis of the developing demand shock through monthly outlooks due out this week starting this afternoon with the Short-term Energy Outlook from U.S. Energy Information Administration. OPEC will publish their Monthly Oil Market Report on Wednesday, and Paris-based International Energy Agency on Thursday.

Tuesday morning, traders also await the weekly rundown of supply data on U.S. commercial crude and petroleum stocks during the week ended Feb. 7. Markets mostly expect crude stocks to have expanded for the third consecutive week, up 2.8 million bbl and refinery ran rates to have decreased around 0.5%. Gasoline stocks are seen to have dropped 1.2 million bbl and distillate supplies to decrease by 400,000 bbl on the week.

American Petroleum Institute is due to release their preliminary estimates 4:30 p.m. ET, followed by official inventory report from EIA due out 10:30 a.m. ET Wednesday.

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

(BAS)

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