Oil prices rebound on hopes for OPEC+ supply cuts
LONDON (Reuters) – Oil prices clawed back ground on Tuesday amid hopes for new output curbs from OPEC and its allies to offset any potential drop in demand triggered by the coronavirus outbreak.
Brent crude stood at $54.88 a barrel by 1135 GMT, up 43 cents, or nearly 0.8%, and U.S. West Texas Intermediate (WTI) crude was up 75 cents, or 1.5%, at $50.86.
Tuesday’s gains marked a rebound after an extended slide over the last two weeks on concern over the global economic impact of China’s coronavirus, which pushed crude prices on Monday to their lowest level in more than a year.
People familiar with the matter told Reuters on Monday that the Organization of the Petroleum Exporting Countries and its allies including Russia, known as OPEC+, were considering cutting crude output by a further 500,000 barrels per day (bpd) due to the impact on demand from the coronavirus.
Still, OPEC+ may face an uphill battle to agree on further cuts so soon after its last output pact, and the lack of clarity over how long the crisis will last may stay their hand.
“Any changes in supply policy … will be decided on the basis of their assessment of the duration of the impact of the coronavirus”, BNP Paribas global head of commodity strategy Harry Tchilinguirian told the Reuters Global Oil Forum.
“If the producer group believes the outbreak to be contained with effects tapering out after a short period like SARS, they have the option to stand pat and weather the lower price environment and until demand returns.”
BP’s CFO Brian Gilvary told Reuters the economic slowdown brought on by the virus will reduce oil consumption for the whole year by 300,000 to 500,000 barrels per day (bpd), roughly 0.5% of global demand.
“We will see how it plays out, but that will soften (demand). If OPEC roll their cuts through the end of year, that should sweep up any excess of supply and re-balance the market.”
Despite the return to calmer trading, mirroring other financial markets on Tuesday, Goldman Sachs warned that while it sees oil producers responding to the situation by cutting supply, the coronavirus outbreak’s impact on demand is likely to keep volatility in spot prices elevated.
“Oil prices are now at levels where we would expect a supply response from both OPEC and shale producers, and where China would likely seek to build crude inventories,” Goldman said in a note.
Reporting by Noah Browning and Seng Li Peng; Editing by Susan Fenton and Louise Heavens
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