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

London/Singapore — Oil prices edged up Friday and held on track for their first weekly gain since early January, backed by expectations that major producers will implement deeper output cuts to offset slowing demand in China caused by the coronavirus epidemic.

Brent crude was up 6c or 0.1% at $56.40 a barrel by 9.11am GMT, and has risen 3.4% since last Friday, its first weekly increase in six weeks. US West Texas Intermediate (WTI) was 3c or 0.1% higher at $51.45 a barrel, up 2.2% for the week.

“Oil prices appear to have stabilised this week on optimism that Opec+ will once again do whatever it takes to tighten output and on hope that the coronavirus peak is nearing,” said Edward Moya, senior market analyst at Oanda in New York.

In response to the demand slump, oil cartel and its oil-producing allies, Opec+, are considering cutting output by up to 2.3-million barrels per day (bpd).

More than 1,350 people have died from the coronavirus in China, which has disrupted the world’s second largest economy and shaken energy markets. Brent has fallen 15% since the beginning of the year.

However, market sentiment improved as factories in China started to re-open and the government eased its monetary policy.

The World Health Organisation (WHO) also reassured traders by saying the big jump in China’s reported cases reflected a decision by authorities to reclassify a backlog of suspected cases, and did not necessarily indicate a wider epidemic.

The International Energy Agency (IEA) said that first-quarter oil demand is set to fall compared to a year earlier for the first time since the financial crisis in 2009 because of the coronavirus outbreak.

“Given the strength seen in the market this week, it suggests participants were factoring in even larger demand hits as a result of Covid-19,” said ING analyst Warren Patterson.

Some officials and analysts were still hopeful that the demand effect would remain limited to China.

“Our baseline thesis remains that oil demand destruction remains largely a China story and has yet to spill over to impact global demand,” said Helima Croft, head of commodity strategy at Citadel Magnus.

US energy secretary Dan Brouillette also told Reuters that the coronavirus epidemic in China has had a marginal effect on energy markets and is unlikely to dramatically affect oil prices even if Chinese demand falls by 500,000 bpd.

Reuters