Oil falls as demand forecasts cut back for first time in 10 years
Opec and the IEA expect a drop in demand as China’s coronavirus cases jump and US crude inventories rise
London — Oil prices fell on Thursday after oil cartel Opec and the International Energy Agency (IEA) reports cut back demand forecasts for the year on the back of the coronavirus outbreak in China, the world’s biggest oil importer.
Brent crude lost 65c to $55.14 a barrel by 9.30am GMT while US West Texas Intermediate (WTI) was down 39c at $50.78.
Oil demand in China, the world’s second-largest crude consumer, has plunged because of travel restrictions to and from the country and quarantines within it.
Hubei province, the epicentre of the outbreak, said on Thursday that the number of new confirmed cases there jumped by more than 15,000 to about 60,000 and that deaths climbed by a daily record of 242 to 1,357, reflecting changes to the diagnostic methodology.
On Thursday, oil refiner China National Chemical Corporation said it would close a 100,000 barrel per day (bpd) plant and cut processing at two others amid falling fuel demand.
The IEA expects oil demand in the first quarter to fall for the first time in 10 years before picking up from the second quarter. The agency cut its full-year global growth forecast to 825,000 bpd.
“[It’s] worth noting that these forecasters are, for now, assuming a V-shape recovery in oil demand, with the bulk of the impairment concentrated in the first quarter of 2020,” BNP Paribas analyst Harry Tchilinguirian told the Reuters Global Oil Forum.
On the supply side, Opec lowered its 2020 demand forecast for its crude by 200,000 bpd, prompting expectations that the producer group and its allies, Opec+, could agree further cuts when they next meet, possibly as early as this month.
Brent and WTI have fallen more than 20% from their January peak because of the Covid-19 outbreak.
Lower fuel demand expectations because of the virus have also shifted the market structure for both Brent and WTI into a contango, when prompt prices are lower than those for later dates.
The six-month spread of Brent futures contracts is at about -76c.
Reflecting a well-supplied market, US crude inventories in the week to February 7 increased by a more-than-expected 7.5-million barrels to 442.5-million barrels, the Energy Information Administration (EIA) said on Wednesday.