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Friday, January 24, 2020

Oil falls below $62, heads for weekly loss on China virus concerns

© Reuters. Pump jacks operate at sunset in an oil field in Midland© Reuters. Pump jacks operate at sunset in an oil field in Midland

By Alex Lawler

LONDON (Reuters) - Oil slipped below $62 a barrel on Friday and was heading for a weekly decline as concern that a virus in China may spread, curbing travel and oil demand, overshadowed supply cuts.

The virus has prompted the suspension of public transport in 10 Chinese cities. Health authorities fear the infection rate could accelerate over the Lunar New Year holiday this weekend, when millions of Chinese travel.

Global benchmark Brent (LCOc1) was down 28 cents to $61.76 at 1115 GMT. The contract is down almost 5% this week, its third consecutive weekly drop. U.S. crude (CLc1) slipped 25 cents to $55.34 and was also on course for a weekly decline.

"One should be prepared for negative surprises when it comes to Chinese demand," said Eugen Weinberg, analyst at Commerzbank (DE:CBKG). "The impact of this is all the greater because the restrictions are being imposed during the busiest travel season for the Chinese."

China is the world's second-largest oil consumer so any slowdown in travel would show up on demand forecasts.

Offering some support for prices was the U.S. Energy Information Administration's latest weekly supply report, which on Thursday showed that crude inventories fell 405,000 barrels in the week to Jan. 17. [EIA/S]

Nonetheless, the upside for prices was limited. Oil inventories in the wider industrialised world are above the five-year average according to OPEC figures, which analysts say is limiting the impact on prices of supply losses.

"Such is the bearish pressure that a raft of ongoing crude supply outages are not gaining much traction," said analysts at JBC Energy in a report.

Such outages include the shutdown this week of the bulk of oil supply in OPEC producer Libya.

The prospect of further steps by the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, could still offer support. OPEC+ has been mostly limiting supply since 2017 and on Jan. 1 deepened a cut in output.

Saudi Arabia's energy minister said all options are open at the next OPEC+ meeting, which is scheduled for March, including further cuts, Al Arabiya television reported.

The current OPEC+ deal expires at the end of March. Russia's No. 2 oil producer Lukoil (MM:LKOH) expects it to be extended, Interfax news agency cited its chief executive as saying on Thursday.

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