Oil heads for fifth weekly loss as demand concerns dominate

By Alex Longley on 2/7/2020

LONDON (Bloomberg) --Oil headed for a fifth weekly loss as demand concerns grow in Asia and Europe, while OPEC+ awaited Russia’s response to its proposal to cut output further.

Chinese refiners are processing 15% less crude than before the coronavirus outbreak, said people with knowledge of operations at the nation’s largest complexes. In Europe, French industrial production missed estimates, compounding a reduced demand outlook. Traders were also watching a meeting in Cairo over the weekend for signs of progress between warring factions in Libya, where oil exports are currently blockaded.

With majors including Total and BP projecting a significant hit to global oil demand this year due to the virus, the market’s structure has nosedived into a bearish contango. That weakness deepened further from it’s softest settlement in 13 months on Friday as Russia gave a much lower estimate for the demand hit, as it weighs an OPEC+ plan to cut output by 600,000 bopd.

“At the moment the sentiment is undoubtedly bearish, but you have to wait until next week for the Russian approval or disapproval,” said PVM Oil Associates analyst Tamas Varga.

Brent fell $0.66, or 1.2%, to $54.27/bbl on the London-based ICE Futures Europe exchange. The contract is down almost 7% this week, set for the longest streak of weekly drops since November 2018. West Texas Intermediate fell 1.4% to $50.26.

Both state-owned and private refineries in China have scaled back processing by at least 2 MMbopd over the past week, said people with knowledge of operations at the nation’s largest complexes. So-called throughput could fall further as demand for aviation and transportation fuels continues to shrink as entire cities remain locked down and travel is restricted, the people said.

Oil Market News

Saudi Arabia’s biggest fear is that absent a deepening of the OPEC+ cuts and their extension, Brent prices will fall below $50/bbl, Eurasia Group analysts said.

The massive drop in Chinese oil demand due to the coronavirus outbreak will outweigh a reduction in supplies because of refinery run cuts, according to Energy Aspects.

The U.S. is preparing to step up enforcement of international rules limiting sulfur in ship fuel, which means the Coast Guard in March will not only have to check what kind of fuel vessels are burning, but also whether they’re carrying a high-sulfur grade on board.

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