Oil Futures Erode 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 eroded further on Tuesday, with crude benchmarks dropping more than 2.5% for the second straight day. Markets are assessing the impact of the coronavirus contagion outside of Asia, raising concerns over additional loss of oil demand growth.

On the session, NYMEX April West Texas Intermediate futures shed $1.53 for a $49.90-per-barrel (bbl) settlement and ICE April Brent declined $1.35 to a 6 1/2-week spot low $54.95 bbl. April Brent held a $0.69 premium to the May contract ahead of expiration Friday afternoon. NYMEX March RBOB futures plunged 7.67 cents at $1.5324 gallon, expanding its discount with the April contract to 10.95 cents ahead of expiration Friday afternoon. NYMEX March ULSD futures dropped 4.47 cents to $1.5685 a gallon -- the lowest settlement in more than two years.

Tuesday afternoon, traders positioned ahead of inventory data to be released from American Petroleum Institute at 4:30 p.m. EST. Markets expect domestic crude oil stocks to increase by about 3.9 million bbl during the week ended Feb. 21, with the U.S. refinery run rate projected to have decreased 0.7%. Gasoline stocks are expected to have declined by 2 million bbl and distillate fuel supply projected to have dropped by 1.5 million bbl on the week.

The International Energy Agency's Executive Director Fatih Birol said Tuesday global oil demand in the first quarter has fallen to the lowest level in over a decade and the agency is likely to further downgrade its forecast in the coming weeks.

"Demand is expected to contract by 435,000 bpd at the start of this year and we may need to revise it downwards," Birol told reporters at an energy conference in London.

Although China is seeing a drop in new coronavirus cases, prompting a gradual return to normal operation of businesses and easing some of travel restrictions, outbreaks outside of Asia now weigh on market sentiment. As of Tuesday afternoon, there were 2,100 confirmed COVID-19 cases across 26 countries, including nearly 45% one-day spike of new infections in Italy. Health officials in the United States warned Tuesday that the spread of the novel coronavirus appears inevitable -- a significant change in tone since the deadly virus first emerged in the country. Still, World Health Organization has not yet called a new COVID-19 virus a global pandemic.

Global financial markets extended their recent declines on Tuesday, with Dow Jones Industrials plunging more than 800 points after posting the third-worst daily point drop in its history. Tuesday's declines came even as the Trump administration has reportedly asked Congress for at least $2.5 billion in emergency funding to fight the coronavirus, and investors drastically boosted their expectations for another rate cut this year. According to CME Feds Watch Tool, markets project at least one rate cut of 0.25% by the Federal Reserve in the next three months.

Oil prices could find potential upside from the upcoming meeting among members of the Organization of the Petroleum Exporting Countries and allied partners on March 5-6 in Vienna, Austria. Saudi Arabia's oil minister, Prince Abdulaziz bin Salman said the alliance should not be complacent about the coronavirus. However, Russia -- a key producer in the group, has yet to announce its position on further curbs. An OPEC+ committee this month recommended the group deepen its output cuts by an additional 600,000 barrels per day.

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

(BAS)

Liubov Georges