Abu Dhabi: Oil prices will remain under strain as the economic fallout from the coronavirus outbreak in China continues to take its toll, analysts say.
Prices on Friday ended on a fourth straight weekly loss, with Brent closing on $56.62 (Dh207)and West Texas Intermediate (WTI) at $51.56.
The steep decline in prices has led to reports emerging of Opec+ countries pushing their scheduled March meeting to February, as the body mulls what steps to take to try and reverse the downward spiral in prices.
Oil markets continued to crumble as uncertainty over the oil demand impact of the coronavirus outbreak gives way to anxiety that China’s oil consumption growth, among others, will be severely curtailed."
The body in December agreed to extend their output cuts to 1.7 million barrels per day for the first three months of 2020 in an effort to stabilize the market. Since the coronavirus outbreak however, all of oil’s gains have been wiped out since December.
“Oil markets continued to crumble as uncertainty over the oil demand impact of the coronavirus outbreak gives way to anxiety that China’s oil consumption growth, among others, will be severely curtailed,” said Edward Bell, commodity analyst at Emirates NBD.
“Opec+ is reportedly considering whether to bring forward its scheduled meeting from March to February in order to develop and deliver a strategy to counter the impact of the coronavirus on markets,” he added.
“However, with such an enormous uncertain variable — the impact of the virus on oil consumption — the risk of miscalculation is high,” he said.
“A more immediate strategy would be to simply extend the deeper cuts agreed in December 2019 for the whole of 2020 rather than just the first quarter. Carrying the cuts forward for the whole year wouldn’t eliminate a surplus in H1 (half year 2020) but would bring markets much closer to balance on average for the year,” bell added.
Ole Hanson, head of commodity strategy at Saxo Bank, said Brent prices would most likely find themselves around the $56 range.
“Opec, increasingly frustrated by the latest slump, stands ready to support the price through extending and potentially making even deeper cuts.
“For now, the market will remain nervous about any further escalation of the virus threat in China and beyond. From a technical perspective, support is now located in the area around $56/b from where Brent bounced twice in August and October last year,” he added.
“The World Health Organisation has declared the virus a public health emergency of international concern and with this we may see further restrictions on trade and travel between China and the rest of world. Both of which are likely to increase global growth concerns and with that dampen the demand outlook for several key commodities,” he said.
“China, the world’s biggest importer of crude oil, is likely to see a slowdown in demand for fuel as planes stay grounded and activity generally experiences a temporary slowdown,” he added.