Oil dips ahead of data on effect of coronavirus on Asia demand
Pandemic is set to cause demand to fall 435,000 barrels per day in the first quarter from the same period a year ago
Singapore — Oil prices edged lower on Monday as investors brace for economic data in Asia due this week that should give a reading on how China’s coronavirus epidemic has affected oil demand.
Brent crude was at $56.99 a barrel, down 33c by 3.21am after rising 5.2% last week, the biggest weekly gain since September 2019.
US West Texas Intermediate crude fell 13c to $51.92 a barrel, after a 3.4% gain last week.
The weekly gains, the first since early January, were spurred by hopes that stimulus measures taken by China to support its economy amid the coronavirus outbreak could lead to a recovery in oil demand in the world’s largest importing country.
But the International Energy Agency (IEA) said the virus is already set to cause oil demand to fall by 435,000 barrels per day (bpd) in the first quarter from the same period a year ago, in what would be the first quarterly drop since the depths of the financial crisis in 2009.
Analysts at Capital Economics said at the weekend that it is too soon to start assessing the longer-term economic fallout from the epidemic.
“Attention will be paid [this week] to the range of flash manufacturing PMIs [purchasing managers’ indices] for February, particularly those in Asia, as these should provide an early indication of how significantly the virus is affecting global manufacturing supply chains,” Capital Economics said.
“We expect the data to be weak, but if they are better than expected industrial commodity prices could see further gains.”
Investors are also anticipating that Opec and its allies, including Russia, will approve a proposal to deepen production cuts in a move to tighten global supplies and support oil prices.
The group, also known as Opec+, has an agreement to cut oil output by 2.1-million bpd until end-March.
A technical committee has recommended the group reduces production by another 600,000 bpd because of the impact from the coronavirus on China’s oil demand.
Russia, facing a growing oil glut, could support further output cuts.