5 Day Drooping Streak Broken: Wuhan Virus Pushes Oil Demand, OPEC Cuts Likely

5 Day Drooping Streak Broken: Wuhan Virus Pushes Oil Demand, OPEC Cuts Likely 

Last updated on July 31st, 2020

Infecting more than 6,000 people globally, the Wuhan Virus has shaken the government authorities worldwide, who are making all possible efforts to control the impact. The spread of the virus has further pushed the price of crude oil and other commodities. Due to the travel restrictions imposed by the governments of infected countries, oil demand has also witnessed a fall.

The current situation of coronavirus outbreak makes it hard to judge the exact blow on oil demand. Post drooping since five days, oil futures hiked on Tuesday. Analysts site Wall Street stock gain and OPEC meetings as possible reasons for this. Sources claim that the OPEC discussions along with the virus outbreak, could put a hefty pressure on oil demand.

Gains in technology and financial shares helped major indexes recover from their biggest selloff in four months. US stocks showed improvement. While the US West Texas Intermediate crude gained 34 cents (0.6 percent), touching $53.48 per barrel, Brent futures gained 13 cents (0.2 percent), touching $59.43 a barrel.

As per Bob Yawger, Director of Energy Futures at Mizuho, New York – “WTI is correlating to U.S. equities, which are stronger.”

Urging caution against saddened expectations on the impact of Wuhan virus on global oil demand, the de-facto leader of the Organization of the Petroleum Exporting Countries – Saudi Arabia is looking forth to calm the market. Officials who are active part of the OPEC are also considering an extension of current oil output cuts, till at least June.

OPEC sources revealed that deeper reductions are possible, if oil demand in China is heavily hit by virus. The producer oil group, OPEC+ has been cutting down oil supply for supporting prices. The organization agreed in December to hold back 1.7 million barrels per day (bpd) of output till March end.

Pertaining to the extensive oil blockade ongoing since years, Libyan output has dropped almost 75 percent, reaching below 300,000 bpd. Comparing to Reuters forecast of 1.3 million-barrel gain, gasoline stocks hiked by 3.3 million barrels. Distillate fuel inventories, including diesel and heating oil, plunged 141,000 barrels.

Based on estimations by Goldman Sachs, if the demand impact while SARS is to be believed, the volumes are pointing to a likely negative impact to global oil demand of 260,000 barrels per day on average. Crude purchases have been locked by Chinese refiners, till April and May. Even if oil demand weakens, sale of cargoes is likely to deteriorate.

Moreover, the civil conflict in Libya has affected almost 1 million bpd of output offline. The state oil firm of North Africa is down to 262,000 bpd from 1.2 million previously.

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