Forecast of Coronavirus Peaking Buoys Crude; All Eyes Now On OPEC To Deliver Deeper Cuts

Meanwhile, demand growth forecast at less than 1 million bpd: File Image/PixaBay

Although the death toll from the coronavirus has topped 1,000, China's top medical advisor offered good news on Tuesday by reporting a decline in new cases and the expectation the epidemic will peak this month - and that was enough for oil prices to recover from the 13 month low incurred in the previous session.

Brent gained 78 cents to settle at $54.05 per barrel, while West Texas Intermediate  gained 37 cents to settle at $49.94 per barrel.

INTL FCStone said in a note that "optimism is growing," however, investors fear that China's embattled crude demand could take another hit if the Organization of the Petroleum Exporting Countries (OPEC) and its allies fail to agree on deepening their output cuts to support prices.

For the record, the cartel is curbing output by 1.7 million barrels per day (bpd) this year and  proposing a further 600,000 bpd cut, but Russia is reportedly still mulling over whether it will participate.

Moreover, sources told media on Tuesday that OPEC is losing precious time to prevent a price decline - an echo of when it was criticized for not preventing oil prices from spiking during a 2008 rally that saw Brent top $147 per barrel on supply fears.

Frances Hudson, global thematic strategist at Aberdeen Standard Investments, stated in an email that "OPEC+ needs to balance production with the demand trajectory, which looks down; if a decision is not taken until the next scheduled meeting in March, I would expect this to limit the scope for what can be achieved."

Meanwhile, analysts are working overtime to determine the ultimate impact of the coronavirus; on Tuesday Rystad Energy predicted the outbreak will severely limit demand growth at 820,000 bpd in 2020, down from a December forecast of 1.1 million bpd.

For its part, Morgan Stanley cut its oil demand growth forecast for 2020 by 15 percent amid plunging passenger transport volumes.