Oil Rallies for Fourth Day as Virus Fears Show Signs of Easing
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Oil gained for a fourth session, the longest rising streak this year, amid signs that the worst impacts of the coronavirus outbreak may be easing.
Chinese refiners have used oil’s earlier drop to snap up cheap cargoes, taking many traders by surprise. That follows the World Health Organization’s view that the sharp increase in the number of virus cases reported in China’s Hubei province this week doesn’t necessarily reflect a sudden jump in new infections.
It’s not just crude prices that have staged a recovery since falling to the lowest level in a year on Feb. 10. The market’s structure also rallied into a backwardation, indicating some of the oversupply may have eased.
The three major oil-forecasting agencies have shown a wide divergence on how severely they expect the virus to affect energy consumption. The Organization of Petroleum Exporting Countries, the International Energy Agency and the U.S. Energy Information Administration have all cut their demand estimates, but the IEA’s reduction is three times as big as the impact seen by OPEC.
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Yet as prices extend gains, analysts and traders are asking whether the biggest repercussions for oil demand may now already be known.
“The physical buying spree by Chinese teapot refineries defies the current picture of a decline in Chinese oil demand,” said Bjarne Schieldrop, chief commodities analyst at SEB. “Instead, it aligns with the view that we have now seen the worst — the virus outbreak is now contained and under control.”
West Texas Intermediate crude for March delivery rose 73 cents to $52.15 a barrel on the New York Mercantile Exchange as of 11:17 a.m. London time. It’s up 3.6% this week. Brent for April settlement gained 1.5% to $57.17 a barrel on the ICE Futures Europe exchange, and is 5% higher for the week.
Prices also have neared buying points for high-frequency, systematic traders known as CTAs, or commodity trading advisers. Those levels were at $56.75 for Brent and $51.90 for WTI, according to Keith Wildie, senior commodities broker at R.J. O’Brien.
The IEA is the most bearish of the three forecasters. It’s predicting an oil demand contraction of 435,000 barrels a day this quarter, which would be the first drop in a decade. That outlook is 1.3 million barrels a day lower than its own estimate a month ago, a downgrade three times as big as OPEC’s. The EIA is in the middle.
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