The oil market proved it was not immune to global health shocks as the coronavirus spread beyond China.
American inventories rose higher than expected, adding to the negative sentiment and on Friday Brent crude was trading higher than US$58 with WTI just above US$52 a barrel.
With Brent crude falling below US$60 a barrel this week, the market is naturally worried.
The virus that originated in Wuhan, China has now crossed international borders with many airlines suspending flights and companies calling a halt to unnecessary business and travel, especially in and out of China.
The World Health Organisation has declared it a global emergency.
The oil price hit a three-month low last week, prompting many analysts to question a more sustained impact on global economic growth.
OPEC action eyed
There’s talk of OPEC revising its March meeting date, but so far there’s been no official word.
If the oil price continues to fall, the CEO of CMarkits, Yousef Al Shammari says the market will need to see a recovery in Chinese industrial activity or “additional cuts from OPEC+ would be necessary if the situation continues to worsen.”
The stock markets are also feeling the impact of the virus as companies report full year earnings for 2019.
Shell reported a 23 percent drop in full-year net profits despite a “strong ending in Q4.”
Shell said crude being driven by sentiment
The CEO Ben van Beurden said the market was being driven by sentiment and the coronavirus will be a concern and it will not help sentiment.
Speaking on CNBC he said, “it’s not too much about sentiment about supply, it is all about sentiment in demand,” and cautioned that the industry must prepare for a “tough and uncertain macro” climate ahead.
Earlier in the week, oil services company Baker Hughes reported a stronger 2019 and the Chairman and CEO Lorenzo Simonelli said he feels “the macro environment is improving” for 2020.
Exxon Mobil and a few other companies report today and other major oil companies will deliver results next week.
US inventories rose
American oil inventories rose last week, up 3.5 million barrels, according to the US Energy Information Administration.
This was an exceptionally high jump as the market was expecting much less. Gasoline stocks were higher too, reaching a record level of more than 261 million barrels last week.
These bigger than expected increases also put downward pressure on the oil price.
The geopolitical impact of the stalemate in Libya continues to keep oil supply off the market.
In a note to clients, investment bank ING cautioned that more supply disruptions at Libyan ports and thereby lack of exports, “would be enough to swing the market into deficit this quarter.”
The chairman of the National Oil Corporation, Mustafa Sanalla warned that the blockade could risk all of the country’s 1.2 million production as forces loyal to the Libyan National Army have seized control of oilfields, pipelines and posts.
Libya’s crude exports is about 262,000 barrels a day and could fall swiftly if the situation continues.
As Britain leaves the EU today, no-one expects an oil market impact as demand throughout Europe is already stagnant and the focus is on warmer weather.
The big concern remains China and the global emergency that demands a coordinated and rapid solution so as not to impact wider economic growth.