oil pump jacks China
Pumpjacks are seen against the setting sun at the Daqing oil field in Heilongjiang province, China. Image Credit: REUTERS/Stringer

Abu Dhabi: Oil prices will be under sustained pressure this week, from the coronavirus outbreak in China, which is hurting demand as a result of the country’s lockdown on travel, analysts said.

Oil markets on Friday closed with Brent at $60.69 (Dh222) and West Texas Intermediate (WTI) at $54.19, with both benchmarks down for the week again.

China’s lockdown has already had a significant impact, with the country’s Ministry of Transport reporting traveller numbers down by 30 per cent in the country on the first day of the Chinese New Year, compared to the same period last year.

Fuel demand will most likely remain low, as long as the lockdown on 56 million people in the Chinese province of Hubei and the virus outbreak continue.


“Oil prices continued their steady drift lower last week as demand concerns increased on fears the coronavirus outbreak will threaten China’s economy, particularly affecting segments that would boost demand for jet and gasoline [petrol],” said Edward Bell, commodity analyst at Emirates NBD.

“Brent futures closed 6.4 per cent lower on the week at $60.69/barrel while WTI gave up 7.4 per cent to settle at $54.19/b. Brent has now lost more than 8 per cent year-to-date while WTI is down nearly 11 per cent before even the end of January,” he added.

“Our forecasts for average prices in Q1 [first quarter of 2020] is Brent at $58/b and WTI at $55/b. While average prices so far are still above our targets, they are converging consistently as weaker fundamentals drag prices lower,” he said.

Ole Hanson, head of commodity strategy at Saxo Bank said the weak market fundamentals would most likely see Opec+ extending their production cuts beyond their March date.


Opec+ agreed in December of last year to increase their production cuts to 1.7 million barrels per day (bpd) until March.

“Crude oil began the week worrying about another potential big drop in supply — this time from Libya … The short-lived rally in crude oil … was halted once the impact of the coronavirus emerged.

“Given the latest developments and crude oil’s inability to find support from geopolitical worries the Opec+ group will be forced to extend production cuts beyond March. Until either demand picks up or non-Opec production fails to deliver the expected barrels,” he added.

“With geopolitical risks still a significant factor, we see the downside limited to $60/b. Whether we get that low depends on further news from China and whether speculators have reduced positions to a more comfortable exposure,” Hanson said, providing a price estimate range for Brent should the coronavirus crisis carry on.