Picture: 123RF/EVGENI BASHTA
Picture: 123RF/EVGENI BASHTA

London — Oil slipped towards $62 a barrel on Friday and was heading for a weekly decline as concern that a virus in China may spread, curbing travel and oil demand, overshadowed supply cuts.

The virus has prompted the suspension of public transport in 10 Chinese cities. Health authorities fear the infection rate could accelerate over the Lunar New Year holiday this weekend, when millions of Chinese travel to their homes and abroad.

Global benchmark Brent fell 2c to $62.02 by 9.51am GMT. Brent was down about 4% this week, its third consecutive weekly drop. US crude rose 6c to $55.65 but was also on course for a weekly decline.

“One should be prepared for negative surprises when it comes to Chinese demand,” said Eugen Weinberg, analyst at Commerzbank. “The impact of this is all the greater because the restrictions are being imposed during the busiest travel season for the Chinese.”

China is the world’s second-largest oil consumer so any slowdown in travel would show up on demand forecasts.

Offering some support for prices was the US Energy Information Administration’s (EIA) latest weekly supply report, which, on Thursday, showed that crude inventories fell 405,000 barrels in the week to January 17.

Nonetheless, the upside for prices was limited. Oil inventories in the wider industrialised world are above the five-year average according to oil cartel Opec figures, which analysts say is limiting the affect of supply losses on prices.

“Such is the bearish pressure that a raft of ongoing crude supply outages are not gaining much traction,” said analysts at JBC Energy in a report. Such outages include the shutdown this week of the bulk of oil supply in Opec producer Libya.

The prospect of further steps by Opec and its allies (Opec+), could still offer support. Opec+ has been mostly limiting supply since 2017 and on January 1 deepened a cut in output.

Saudi Arabia’s energy minister said all options are open at the next Opec+ meeting, which is scheduled for March, including further cuts, Al Arabiya television reported.

The current Opec+ deal expires at the end of March. Russia’s number two oil producer Lukoil expects it to be extended, Interfax news agency cited its CEO as saying on Thursday.

Reuters