By Peter Nurse
Investing.com - Oil prices pushed higher Wednesday, helped by reports of a breakthrough in the fight to combat China’s coronavirus, coupled with expectations that the group of major producers will cut production levels.
By 9:00 AM ET (1400 GMT), U.S. crude futures were up 2.8% at $50.98 a barrel, while futures in U.K. Brent, the global crude benchmark, were up 2.9% at $55.54 a barrel. Overnight, WTI futures had fallen below $50 a barrel for the first time in over a year.
Earlier Wednesday, reports emerged that a Chinese university had found a drug to treat people with the new coronavirus as well as researchers in the UK saying they made a "significant breakthrough" in finding a vaccine.
Neither has apparently been tested yet. And the World Health Organisation was quick to pour cold water over the reports, with a spokesman in Geneva stating: “There are no known effective therapeutics.”
But the market remains optimistic.
Technical experts from the Organization of Petroleum Exporting Countries and its allies, a group known as OPEC+, are continuing to meet at the cartel’s Vienna headquarters to evaluate the disease’s impact on demand. The view of these experts may help determine whether the alliance convenes a ministerial meeting later this month, instead of in March as currently scheduled.
Saudi Arabia is pushing for an additional production cut of at least 500,000 barrels a day, according to some OPEC+ delegates, but Russia is reluctant to make deeper moves.
Even if these cuts are agreed, the impact they might have upon oil prices is debatable.
BP (LON:BP) stated Tuesday that the coronavirus could cut demand by up to 500,000 barrels a day for the year, while OPEC’s own analysis indicates a modest drop of around 400,000 barrels a day for about six months.
“If we assume that OPEC numbers are correct, and then factor in the supply losses we are seeing from Libya at the moment, and assume that these last through until the end of Q1, 500,000 b/d of additional cuts should be almost enough to balance the market over Q1,” said analysts at ING, in a research note.
“Whilst over Q2 we would likely need to see current cuts of 1.7 million b/d rolled over through until at least the end of June,” ING added.
Elsewhere, consultants Wood Mackenzie cut their estimates for first-quarter global demand by 900,000 barrels a day to 98.8 million b/d. Ann-Louise Hittle, Vice President, Macro Oils, noted that the estimated fall in Chinese demand - of 200,000 b/d to 13 million b/d - is the first year-on-year decline in the country’s demand since 2009.
Later Wednesday sees the release of official government figures detailing the extent of U.S. stockpiles, with a gain of 2.8 million barrels expected. The American Petroleum Institute showed Tuesday U.S. inventories rose by about 4.2 million barrels.