Oil recovered some of its losses following the biggest drop in almost seven weeks as investors attempted to gauge the economic consequences of the fast-spreading coronavirus and whether it would become a global pandemic.
Futures in New York staged a partial recovery after tumbling 3.7 percent Monday amid a broad market selloff driven by a sharp uptick in cases and deaths from the virus in South Korea, the Middle East and Europe. Prices extended their recovery after Saudi Energy Minister Prince Abdulaziz bin Salman expressed confidence in the OPEC+ partnership, saying the group hasn’t made a decision yet on whether to extend or modify its production-cut agreement.
Crude had rallied over the past couple of weeks on optimism the virus would be mainly contained within China and the global economy would avoid a major slowdown. Those assumptions are now in doubt following the rapid spread over the past few days, which is also likely to put more pressure on OPEC and its allies to take action to stabilize oil markets.
“Sentiment took a beating overnight and I suspect there’s a bit more to come, considering the growth indicators we’ve seen outside China,” said Daniel Hynes, senior commodity strategist at ANZ Banking Group Ltd. in Sydney. “Up until now, concern had been centered on China itself and this does raise the stakes a fair bit.”
West Texas Intermediate for April delivery rose 0.8 percent to $51.83 a barrel on the New York Mercantile Exchange as of 2:40 p.m. in Singapore. It slumped $1.95 on Monday to close at $51.43, the lowest since February 13.
Brent for April settlement added 0.8 percent to $56.74 on the ICE Futures Europe exchange after falling 3.8 percent on Monday. The global crude benchmark traded at a $4.91 premium to WTI.
At least 12 people have died in Iran while Kuwait and Bahrain confirmed their first cases of the coronavirus as the worldwide infection toll rose past 80,000. The head of the World Health Organization called the outbreak’s spread “deeply concerning, but said it wasn’t a pandemic yet.”
Vitol Group, the world’s biggest independent oil trader, estimates the virus is currently reducing China’s oil demand by about four million barrels a day, or around four percent of global consumption. While Vitol and others are positioning for a demand rebound, forecasts for when that will come may now need to be pushed back as the outbreak goes global.
Russia – which had asked for more time before committing to additional production cuts recommended by OPEC+ officials – may be forced to agree to the reductions if the rapid spread of the virus pushes oil prices down further, according to Vandana Hari, the founder of Vanda Insights in Singapore.