Crude Futures Off Lows Despite USD

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 mixed in afternoon trade Tuesday, with both crude benchmarks off intrasession lows as the market assesses the projected economic fallout from a prolonged coronavirus epidemic that is now seen disrupting global supply chains and trade flows.

These concerns are also pushing up the value of U.S. dollar that has advanced to a 33-month high 99.375 in afternoon index trade, weighing on front-month West Texas Intermediate contract. On the session, NYMEX March WTI futures settled unchanged at $52.05 per barrel (bbl) after dropping as much as 2.5% in midmorning trade and ahead of contract expiration Thursday afternoon. ICE April Brent contract moved up $0.08 to $57.75 bbl, paring declines from an intrasession low of $56.30 bbl. NYMEX March RBOB futures surged 3.15 cents for a $1.6148 gallon settlement, reflecting a seasonal uptrend in the gasoline market and front-month ULSD futures finished 2.58 cents lower at $1.6724 gallon.

Crude futures were off to a lower start on Tuesday, weighed down by renewed concerns the covid-19 epidemic in China could erode global economic growth. U.S. tech giant Apple announced the virus has severely disrupted its production chain and reduced demand for its products in China, leading the company to miss its quarterly profit target. In reaction to the announcement, global shares pulled back, with Dow Jones Industrials down 163 points and S&P 500 shedding 0.29%.

Further weighing on market sentiment, German manufacturers reported on Tuesday a sharp drop in the investment climate this month and cited depressed demand for imports to China.

"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.

Beijing reported a slowdown in coronavirus deaths and infections on Tuesday. For the first time since the end of January, the number of new infected cases dropped below 2,000 while the death toll fell for the first time since last Tuesday to below 100. However, the World Health Organization warned to remain cautious, as the virus is still breaking out locally and globally. In China alone, more than 150 million people or 10% of its population remain under quarantine that varies from state to state, resulting in transportation and supply bottlenecks.

Russia's Energy Minister Alexander Novak confirmed Tuesday there would be no emergency OPEC+ meeting prior to a previously scheduled gathering on March 6 in Vienna, Austria. Novak continues to discuss a production pact with his colleagues in OPEC+, Vladimir Putin's spokesman Dmitry Peskov told reporters in Moscow Tuesday.

OPEC has tried to persuade Russia to agree to deeper oil production cuts, on which Moscow has said it would disclose its stance in the coming days. Most Russian oil companies seem to only want the OPEC+ deal to be extended through the second quarter after it expires at the end of March.

OPEC+ agreed in December to cut output by 1.7 million barrels per day (bpd) through the first quarter to drain global inventories in the market, while Saudi Arabia committed another 400,000 bpd in voluntary cuts. The coronavirus epidemic prompted OPEC+ to contemplate deeper production cuts to offset flagging demand in China.

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

(BAS)

Liubov Georges