Oil drilling rig. Image: Shutterstock

Oil gained more than 1% on Tuesday, recovering from a 13-month low as the number of new coronavirus cases slowed in China, easing some concern over the potential for lengthy oil demand destruction.

The death toll climbed above 1,000 on Tuesday, though the number of new confirmed cases fell. The epidemic could peak in February and then plateau before easing, said the Chinese government’s top medical adviser on the outbreak. 

Brent crude LCOc1 was up 90 cents, or 1.7%, at $54.17 a barrel by 12 p.m. EST (1700 GMT), having dropped on Monday to its lowest since January last year at $53.11. U.S. West Texas Intermediate CLc1 crude was up 53 cents, or 1.1%, at $50.10. 

“Oil prices are rallying on the fact that less coronavirus cases were reported today compared to yesterday,” said Andy Lipow, president of Lipow Oil Associates. “However, I still think that OPEC+ needs to take some action because there has been a serious dent in oil demand here in February.” 

Investors remain wary that China’s oil demand could take a further hit if the coronavirus cannot be contained and if OPEC and its allies, known as OPEC+, fail to agree on further steps to support prices. 

“Though oil is recovering again today, the lack of any coordinated action by OPEC+ means that oversupply concerns are likely to retain the upper hand,” said Commerzbank analyst Eugen Weinberg. 

The virus is already denting demand in the world’s second-largest oil consumer. Chinese state refiners plan to cut as much as 940,000 barrels per day (bpd) – almost 1% of world demand – from their crude processing rates in February. 

Oil rose alongside a rally in world equities, which resumed their climb towards record highs on Tuesday on hopes the virus is peaking. 

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia are restraining output by 1.7 million bpd in 2020 to support the market and have been considering further curbs. 

An OPEC+ advisory panel proposed an additional cut of 600,000 bpd last week, but Russia has delayed delivering its official stance, frustrating some OPEC members. 

In a development that could add to downward pressure on prices, U.S. crude inventories are expected to rise for a third straight week, by 2.9 million barrels in the week ended on Feb. 7, a Reuters poll showed. <EIA/S> 

U.S. supply reports are due later on Tuesday and on Wednesday.

Reuters | NEW YORK


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