Oil extended its recovery from a virus-induced slump as a report showing a drop in US crude inventories, a rebound on Wall Street and speculation Opec+ will step in to prop up prices reassured investors.
The American Petroleum Institute reported stockpiles fell by 4.27 million barrels last week, which would be the biggest drop this year if confirmed by government data due later on Wednesday. That took some attention away from the novel coronavirus, which kept spreading as confirmed cases in China overtook the official number of infections during the SARS epidemic.
Oil has rebounded 1.6 per cent after closing at a three-month low on Monday amid concern over the potential impact of the outbreak on travel and economic activity in China, the world’s biggest energy consumer. The Organisation of Petroleum Exporting Countries and its allies could deepen output cuts at its next meeting in March to take account of lower demand due to the virus, according to Ed Morse, head of commodities research at Citigroup Inc.
Oil prices stabilised in line with broader risk sentiment, and prices were further bolstered by the API report, Stephen Innes, chief Asia market strategist at AxiCorp, said in a note. A potential supply response from Opec “should provide some semblance of a floor until oil traders receive concrete evidence that containment is working and that infection rates are slowing,” he said.
West Texas Intermediate for March delivery rose 1 per cent to $54 a barrel on the New York Mercantile Exchange as of 7:45am in London. The contract finished 0.6 per cent higher on Tuesday.
Brent for March settlement added 0.9 per cent to $60.05 a barrel on the London-based ICE Futures Europe exchange after closing up 0.3 per cent on Tuesday. The global crude benchmark traded at a $6.05 per barrel premium to WTI.
US crude stockpiles are currently at a three-month low after big declines in December. Analysts surveyed by Bloomberg are forecasting a 1.29-million barrel gain in inventories ahead of the official Energy Information Administration data.
Asian stocks were mixed Wednesday after the S&P 500 Index closed up 1 per cent on Tuesday in the biggest gain since October. There have been at least 132 deaths from the coronavirus in China, and almost 6,000 cases. The drop in the price of oil due to the virus is “overdone by about $5 a barrel,” according to Citigroup’s Morse.