Oil prices jumped by four per cent on Wednesday on media reports that scientists had developed a drug against the fast-spreading coronavirus, an outbreak that continues to weigh heavily on global economic activity and oil demand. The World Health Organisation played down the media reports, saying there were “no known effective therapeutics” against the virus.
Lending further support to oil was news that the Organisation of the Petroleum Exporting Countries and its producer allies were considering further output cuts to counter a potential squeeze on global oil demand. Brent crude oil futures were up $2.11, or four per cent, at $56.09 a barrel by 10:53 a.m. ET (1553 GMT), while US West Texas Intermediate crude gained $1.94, or 3.9 per cent, to $51.55, according to Reuters.
Prices held gains after data showed US crude inventories rose by 3.4 million barrels in the week to January 31, compared with expectations in a Reuters poll for a 2.8 million-barrel rise. China’s Changjiang Daily newspaper reported on Tuesday that a team of researchers led by Zhejiang University Professor Li Lanjuan had found that drugs Abidol and Darunavir can inhibit the virus in vitro cell experiments.
Separately, Sky News reported that a British scientist has made a significant breakthrough in the race for a vaccine by reducing part of the normal development time from two to three years to only 14 days. Still, refineries including China’s Sinopec, Asia’s top refiner, have slashed throughput as the virus cuts demand for refined fuels. Fears of a slump in global oil demand had pushed US crude and Brent futures into contango this week – a structure in which longer-dated oil futures trade at a premium that encourages traders to keep crude in storage for more profitable resale in the future.
“Based on our forecast that China’s GDP growth will slow to just by three per cent year-over-year in Q1 2020 and assuming that the virus is brought under control relatively quickly, we have tentatively pencilled in a 10 per cent drop in the country’s oil consumption in Q1,” Capital Economics analysts said in a note Wednesday. “This pushes the global market into a small surplus in the first half of 2020.”
Falling demand for jet fuel worldwide because of the deadly coronavirus has also hit US prices for the product, which dropped to its lowest seasonally in five years, market participants said. A slowdown in the global economy resulting from the outbreak is expected to reduce 2020 worldwide oil demand growth by 300,000-500,000 barrels per day, roughly 0.5 per cent of total demand, BP’s Chief Financial Officer, Brian Gilvary, said on Tuesday.
“The (Chinese) economy will be weakened for some time to come as quarantines, social distancing and travel restrictions remain in place,” BNP Paribas analyst, Harry Tchilinguirian, told the Reuters Global Oil Forum. “But as financial markets are anticipatory, one can see how favourable news in relation to potential medical solutions, or indications that we have reached a turning point in the progress of the virus outbreak, are likely to be interpreted positively.”
OPEC and allies led by Russia, a group known as OPEC+, considered the impact on global oil demand and economic growth from the coronavirus at a meeting on Wednesday. Producers are considering further output cuts and moving a planned policy meeting to February rather than March.