By Adedapo Adesanya
Oil prices made an average three percent recovery last week as major futures ended the week pointing up as demand improved around possibilities that the Organisation of the Petroleum Exporting Countries (OPEC) and its allies will come through with the production cuts a technical committee recommended during its meeting two weeks ago.
Also, prices were driven up as investors looked to draw up an optimistic approach despite the worsening case of the coronavirus, now named COVID-19, with the market faced with a lot of bearish outcomes into two months this year.
Brent, the International crude settled at $57.32 per barrel while the US West Texas Intermediate (WTI) crude ended the week at $52.05 per barrel.
Although it was earlier believed that China reported the lowest number of new coronavirus cases since the end of January, this eased concerns about a drop-off in demand for oil supporting prices.
However, circumstances changed later in the week after there were reports of 242 new deaths in the Hubei province, where the virus was said to have originated, doubling the number of casualties since the spread started in December.
The COVID-19 has continued to impact the demand for oil and last week, there was a huge drop in demand forecast for oil by organisations and agencies. OPEC said it now expects daily oil demand growth to be 990,000 barrels per day (bpd), which is 230,000 bpd below previous forecasts of 1.22 million barrels per day.
On its part, the International Energy Agency (IEA) said oil demand is set to fall year-on-year in the first quarter for the first time since the financial crisis in 2009, attributing this to the coronavirus outbreak in China.
For the Energy Information Administration (EIA), it said last Wednesday that crude supplies in the United States rose by 7.5 million barrels for the week ended February 7 higher than 2.9 million barrels expected.
Going into this week, Business Post analysts foresee low demand forecasts forcing OPEC and its allies, including Russia, to implement the additional production cuts of 600,000 barrels per day earlier recommended at the February impromptu meeting.
An OPEC+ joint technical committee had recommended extending the output cuts until the end of 2020, with provisions for a temporary deepening of cuts to counter the impact of the coronavirus on the oil markets.
The joint technical committee, which includes Algeria, Saudi Arabia, Russia, the UAE, Iraq, Kazakhstan, Kuwait and Nigeria, was said to have recommended additional cuts of 600,000 bpd until the second quarter of the year at the meeting, but Russia said it requires more time to assess the impact of the coronavirus on oil markets before committing to any cuts and said it will consult with other producers.
A positive response from Russia will spur prices up this week but if it continues to hold on, prices may move around gains and losses. However, if it says no to the cut, prices may plunge as low as it did during the global recession of 2009.
As at the time of this report, prices were trading up for the Brent crude at $57.35 per barrel while the US WTI crude was also pointing up at $52.10 per barrel.
Dipo Olowookere