Oil futures fell toward their lowest levels in two weeks on Tuesday, a day after worries about the spread of COVID-19 outside China sent crude tumbling.
There is “plenty of bearish sentiment still hanging over the market,” said Robbie Fraser, senior commodity analyst at Schneider Electric.
“The spread of the COVID-19 virus continues to dominate market direction, overshadowing all over factors in the current environment,” he said in a daily note. “Particularly concerning of late is the virus’ spread outside of China, with confirmed cases in several key oil producing states including Oman, as well as a significant number of cases in Iran.”
West Texas Intermediate crude for April delivery CLJ20, -1.50% fell 39 cents, or 0.8%, to $51.04 a barrel on the New York Mercantile Exchange, while May Brent crude BRNK20, -1.31% dropped 43 cents, or 0.8%, to $55.87 a barrel on ICE Futures Europe.
“Concerns over the rising number of COVID-19 cases outside China continues to weigh on sentiment, and market participants are likely to remain cautious until there is a sign of a peak” in cases outside of the country, said Warren Patterson, head of commodities strategy at ING, in a note.
WTI, the U.S. benchmark, dropped 3.7% on Monday, while Brent, the global benchmark, shed 3.8%, as investors fled assets perceived as risky, including equities, and piled into traditional havens like gold GCJ20, -1.08% and U.S. Treasurys TMUBMUSD10Y, -2.73%. The move came after a jump in the number of cases outside China of the disease caused by the novel coronavirus that emerged in Wuhan, China, late last year.
Fears the coronavirus would dent demand for crude in China pressured oil prices earlier this year, pushing the commodity into a bear market. The spread of the disease outside of the country and fears it could have further implications for supply chains and the global economy have contributed to recent weakness, alongside uncertainty over the ability of the Organization of the Petroleum Exporting Countries, or OPEC, and its allies to respond with additional production cuts amid signs of strain between Saudi Arabia and Russia.
OPEC and its allies, known as OPEC+, will meet late next week to discuss demand and production levels.
“OPEC+ is showing no signs of agreement and, in our view, the outlook from their monitoring committee underestimates the drop in consumption and its duration,” said James Williams, energy economist at WTRG Economics, in a note issued Tuesday. “If there is not a substantial short term drop in production at the March meeting late next week, we are in for a significant drop in prices.”
In other energy trading, March gasoline RBH20, -2.32% fell 1.4% to $1.5859 gallon, while March heating oil HOH20, -0.74% was at $1.6087 a gallon, down 0.3%
March natural gas NGH20, +0.77%, which expires at Wednesday’s settlement, gained 1% to $1.846 per million British thermal units.
Weekly U.S. petroleum supply data will be released by the American Petroleum Institute late Tuesday. The Energy Information Administration will release government figures early Wednesday.
Analysts polled by S&P Global expect the EIA to report an increase of 2.8 million barrels, on average, for the week ended Feb. 21. Gasoline stockpiles are expected to post a fall of 1.9 million barrels, while distillate inventories are forecast to decline by 900,000 barrels.
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