Brent Futures Drop Tuesday

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 shifted lower in early trade Tuesday, with the international crude benchmark falling below $57 per barrel (bbl) after overnight data from Germany showed a sharp deterioration in investment confidence across its manufacturing industry amid growing concerns the covid-19 virus epidemic in China will hamper global trade.

In early trading, NYMEX March West Texas Intermediate futures dropped $1.02 to near $51.03 bbl and ICE April Brent contract moved down $1.26 to $56.41 bbl. NYMEX March RBOB futures slipped 0.52 cents to near $1.5781 gallon and front-month ULSD futures were down 3.74 cents to a $1.6608 gallon.

Crude futures resumed a downtrend at the start of a holiday-shortened trade week in the United States following a German survey that showed investment confidence in eurozone's largest economy plunged 15.7% in February versus an expected deterioration of 9%. German manufacturers grew increasingly concerned the coronavirus outbreak in China would curb global demand for its machinery and other industrial exports.

"The feared negative effects of the coronavirus epidemic in China on world trade have been causing a considerable decline of the ZEW Indicator of Economic Sentiment for Germany. Expectations regarding the development of the export-intensive sectors of the economy have dropped particularly sharply," ZEW President Achim Wambach said in a statement.

Further weighing on the sentiment, Apple Inc. shocked markets Monday by announcing the company will not meet its second-quarter forecast for revenues due to growing supply constraints and lower demand in China.

City lockdowns across China have caused Apple to temporarily halt production and close some of its retail stores.

Following the announcement, Dow Jones Industrial Average futures fell as much as 178 points and other major indexes are also poised for a lower open. European shares fell and Asian stocks traded mixed aided in part by China's move Tuesday to cut interest rates.

Moody's downgraded China's economic growth forecast 0.6% to 5.2% for 2020, citing deepening economic fallout from the viral disease. Even as China's factories reopen and employees return to work, nearly 150 million people or 10% of China's population will remain under quarantine. Wall Street Journal reported quarantines vary greatly from province to province, causing supply disruptions and transportation bottlenecks.

The Chinese government said a total of 72,436 people are confirmed to have had the disease while 1,868 people have died.

Separately, oil traders still await an official policy response from Organization of the Petroleum Exporting Countries and partners, known as OPEC+. Last week's reports indicated Russian oil executives voiced their support for extending an existing 1.7 million barrels per day (bpd) in production cuts through the end of the second quarter, while the country's official position is yet to be revealed. The delay further weighed on market sentiment.

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

(BAS)

Liubov Georges