Oil prices rebound on hopes for OPEC+ supply cuts
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[February 04, 2020] By
Noah Browning
LONDON (Reuters) - Oil prices clawed back ground on Tuesday
amid hopes for new output curbs from OPEC and its allies to offset any
potential drop in demand triggered by the coronavirus outbreak.
Brent crude stood at $54.88 a barrel by 1135 GMT, up 43 cents, or nearly
0.8%, and U.S. West Texas Intermediate (WTI) crude was up 75 cents, or
1.5%, at $50.86.
Tuesday's 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.
People familiar with the matter told Reuters on Monday that the
Organization of the Petroleum Exporting Countries and its allies
including Russia, known as OPEC+, were considering cutting crude output
by a further 500,000 barrels per day (bpd) due to the impact on demand
from the coronavirus.
Still, 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.
"Any changes in supply policy ... will be decided on the basis of their
assessment of the duration of the impact of the coronavirus", BNP
Paribas global head of commodity strategy Harry Tchilinguirian told the
Reuters Global Oil Forum.
"If the producer group believes the outbreak to 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."
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Pump jacks operate in front of a drilling rig in an oil field in
Midland, Texas U.S. August 22, 2018. Picture taken August 22, 2018.
REUTERS/Nick Oxford/File Photo
BP's CFO Brian Gilvary told Reuters 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.
"We will see how it plays out, but that will soften (demand). If OPEC
roll their cuts through the end of year, that should sweep up any excess
of supply and re-balance the market."
Despite the return to calmer trading, mirroring other financial markets
on Tuesday, Goldman Sachs warned that while it 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.
"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," Goldman said in a note.
(Reporting by Noah Browning and Seng Li Peng; Editing by Susan Fenton
and Louise Heavens)
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