Oil prices gain momentum amidst new output from OPEC

Oil prices on Tuesday gained momentum amidst new output curbs from Organisation of Petroleum Exporting Countries (OPEC) and its allies to offset any potential drop-in demand triggered by the coronavirus outbreak.

Brent crude  gained 0.9 per cent to trade at $54.95 per barrel, while U.S. West Texas Intermediate crude was up by 1.3 per cent $50.77 a barrel.

Analysts said, Tuesday gains marked a rebound after an extended slide over the last two weeks on concern over the global economic impact of China’s coronavirus, which pushed crude prices on Monday to their lowest level in more than a year.

Sources said,  OPEC and its allies were known as OPEC+ was considering cutting crude output by a further 500,000 barrels per day (bpd) due to the impact on demand from the coronavirus.

Analysts revealed that, it is not yet Uhuru as OPEC+ may face an uphill battle to agree on further cuts so soon after its last output pact and the lack of clarity over how long the crisis will last may stay their hand.

Daily Times gathered that,  changes in supply policy will be decided on the basis of their assessment of the duration of the impact of the coronavirus and also If the producer group believes the outbreak would be contained with effects tapering out after a short period like SARS, they have the option to stand pat and weather the lower price environment and until demand returns.

Investigations revealed that,  the economic slowdown brought on by the virus will reduce oil consumption for the whole year by 300,000 to 500,000 barrels per day (bpd), roughly 0.5% of global demand but that will soften demand If OPEC roll their cuts through the end of the year, which should sweep up any excess of supply and re-balance the market.

Oil analyst, Goldman Sachs warned that, while he sees oil producers responding to the situation by cutting supply, the coronavirus outbreak’s impact on demand is likely to keep volatility in spot prices elevated, despite the return to calmer trading mirroring other financial markets.

“Oil prices are now at levels where we would expect a supply response from both OPEC and shale producers, and where China would likely seek to build crude inventories,” he said.