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Feb. 13, 2020, 3:57 p.m. EST

Oil up a 3rd straight session as traders eye coronavirus and OPEC output update

International Energy Agency cuts forecast for world demand growth

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By Myra P. Saefong and William Watts, MarketWatch


Bloomberg

Oil futures ended higher Thursday, extending their streak of gains to a third straight session, as the potential for OPEC+ output cuts fueled some optimism, despite a rise in the number of COVID-19 cases in China and lower forecasts for oil demand growth.

“Crude prices are cautiously eyeing a three-day winning streak amid a broader bearish move, as potential OPEC+ action and efforts to contain COVID-19 spread leave room for optimism,” said Robbie Fraser, senior commodity analyst at Schneider Electric, in a note.

“While confirmed cases of COVID-19…recently spiked according to reports out of China’s Hubei province, the increase is being attributed to a change in methodology for diagnosing the virus rather than a sudden increase in transmission,” he said.

West Texas Intermediate crude futures for March delivery  tacked on 25 cents, or 0.5%, to settle at $51.42 a barrel on the New York Mercantile Exchange, while April Brent crude  rose 55 cents, or 1%, to $56.34 a barrel on ICE Futures Europe. Prices for both benchmarks posted gains in each of the past two sessions.

China on Thursday reported 254 new deaths from the virus over the past 24 hours, while the number of new cases jumped 15,152, after the government applied a new methodology in hard-hit Hubei province of diagnosing infections of the novel strain of coronavirus that reportedly originated in Wuhan, China, last year and was recently classified by the World Health Organization as coronavirus disease. The new figures brought total deaths from the outbreak at 1,362, while the total number of confirmed cases rose to 59,804.

Despite the news, “oil is coming back because it really is not a surprise to traders that the China was underreporting cases,” said Phil Flynn, senior market analyst at The Price Futures Group.

Also, the International Energy Agency’s reported drop in demand “wasn’t a shocker either,” he told MarketWatch. “I think the trade has already priced in more demand destruction than has actually happened.”

The IEA on Thursday lowered it forecast for oil-demand growth to its slowest pace since 2011, blaming the viral outbreak. The Paris-based agency now expects global demand for crude to grow by 825,000 barrels a day in 2020, down 365,000 barrels a day from its previous forecast.

The Organization of the Petroleum Exporting Countries on Wednesday also cut its forecast for growth in crude demand this year.

At a meeting earlier this month, the group’s Joint Technical Committee recommended extending current production cuts that began in January to end of this year. They were previously set to expire at the end of March. The committee also recommended a “further adjustment in production until the end of the second quarter.” OPEC and OPEC+ will hold their next official meetings on March 5 to March 6 in Vienna.

Flynn said he believes non-OPEC member Russia will “eventually give into OPEC on a production cut.”

On Wednesday, data from the Energy Information Administration Wednesday that U.S. crude supplies rose for a third straight week, up 7.5 million barrels for the week ended Feb. 7, while supplies of gasoline and distillates edged lower.

Back on Nymex, March gasoline  fell by 0.05% to $1.5802 a gallon, while March heating oil  added 0.3% to $1.6805 a gallon.

Natural-gas futures, meanwhile, settled lower, even as U.S. government data revealed a bigger-than-expected weekly decline in supplies of the fuel.

Read: Why natural-gas prices may sink further after hitting 2016 lows

The EIA reported Thursday that domestic supplies of natural gas fell by 115 billion cubic feet for the week ended Feb. 7. That compared with a decline of 108 billion cubic feet forecast by analysts polled by S&P Global Platts.

March natural gas  shed 1% to $1.826 per million British thermal units.

Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong. William Watts is MarketWatch's deputy markets editor, based in New York. Follow him on Twitter @wlwatts.

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