Oil prices steady but set for weekly gain on supply cut optimism

Andrew Cummings
February 14, 2020

The new estimates show that oil markets face a significant surplus despite the latest production cuts by OPEC and its partners.

OPEC on Wednesday cut its forecast for growth in global oil demand as well due to COVID-19.

"Global oil demand has been hit hard by the novel coronavirus (COVID-19) and the widespread shutdown of China's economy", the International Energy Agency said in its latest monthly report.

"We have cut our 2020 growth forecast by 365 kb/d to 825 kb/d, the lowest since 2011".

While the IEA still expects demand for oil to grow for this year as the outbreak is contained, it slashed its forecast for the increase in global consumption by almost a third to 825,000 barrels per day, the smallest increase since 2011. Its oil demand has nearly doubled since 2003 and represented more than three-quarters of global oil demand growth past year.

Brent and WTI have fallen more than 20 percent from their January peak because of the coronavirus outbreak.

With it estimating that China's global air travel having fallen by 70 percent and domestic travel by half in the early part of the crisis, the IEA expects double digit drops in jet fuel demand in the country.

In the meantime, Russian oil producers favour extending oil production cuts rather than deepening them, S&P Global Platts reported on Friday, citing Russian oil giant Gazprom Neft's CEO Alexander Dyukov. However, Russia, the kingdom's most important partner in managing supplies, has so far resisted the initiative.

Oil demand in China, the world's second-largest crude consumer, has plunged because of travel restrictions to and from the country and quarantines within it. Hubei Province, the epicentre of the outbreak, said on Thursday that the number of new confirmed cases there jumped by 14,840 to 48,206 on February 12 and deaths climbed by a daily record of 242 to 1,310. Last month, OPEC was already pumping the least crude since the financial crisis of 2009, according to the IEA.

"The outbreak of the coronavirus in China during the first half of 2020 is the major factor behind this downward revision", Opec said. That industry is likely to remain resilient against the price slump until later in the year, it predicted.

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