Oil Mixed As Russia's Silence On Deeper Cuts To Block Coronavirus Spooks Traders

Meanwhile, more analysts believe the virus's impact will be relatively short: File Image/PixaBay

Optimism over the Organization of the Petroleum Exporting Countries (OPEC) possibly enacting deeper production cuts to counter the economic impact of China's coronavirus turned to trepidation on Thursday, with oil prices mixed as traders waited to see if Russia will agree to the cuts.

According to sources, an OPEC technical panel has recommended a cut of 600,000 barrels per day (bpd) to start immediately and continue until June if all members agree to it, a source said.

Although many producers including Saudi Arabia have endorsed deeper reductions - which caused crude to soar by several percentage points on Wednesday - Russia's silence on the matter has suddenly spooked the analytical community: Phil Flynn, senior market analyst at Price Futures Group Inc., said, "The Russians are raining on the news; the production cut probably is needed to get off the short-term demand destruction."

Meanwhile in China, the growing virus has slowed economic activity and demand, to the point where short-term sales of crude oil and liquefied natural gas have ground to a halt.

Plus, Brent and West Texas Intermediate are now in contango, indicating the market acknowledges ample supply and/or falling demand for crude.

All these factors contributed on Thursday to Brent dropping by 35 cents to settle at $54.93 per barrel, while WTI rose 20 cents to settle at $50.95.

However, if the virus is significant in its severity, a growing number of observers are taking solace in the notion that at least it will be short-lived: Patrick Pouyanne, CEO of Total, pointed out on Thursday that "There will be a possible impact [on oil markets] in the next two months that might be substantial, China will reduce its consumption."

Pouyanne was echoing sentiments expressed earlier by John Kemp, commodities analyst for Reuters, who on Wednesday forecast that the biggest impact will be confined to the first quarter of 2020.

But as Reuters noted on Thursday, anything is possible considering China's role as oil's preeminent swing consumers: "If China's sudden demand reduction endures, a new cut might not be enough; yet, if the coronavirus follows a similar path to SARS, oil producers might face a rush of pent-up demand once the initial panic is over."

The news agency added, Meanwhile...Chinese demand for imports could stay steady even if consumers use less, as Beijing may take advantage of cheaper prices to replenish its strategic supplies."