Oil rises a second day in ‘relief rally’ over China coronavirus
Brent futures rose by 77 cents, or 1.4 per cent, to $ 56.05 a barrel by 0735 GMT, having risen 2.4 per cent in the last session. US West Texas Intermediate (WTI) futures gained 95 cents, or 1.9 per cent, to $ 51.70 a barrel after rising 2.3 per cent on Wednesday.
A committee that advises the Organization of the Petroleum Exporting Countries (OPEC) and allied producers, a group known as OPEC+, is set to meet for a fourth day on Thursday. They are discussing whether to reduce oil production further to support prices after a multi-day slump over concerns about economic growth and energy demand caused by the outbreak.
“Given the pressure we have seen the oil market under recently, it does seem that a relief rally was long overdue,” ING Economics said in a note.
The Joint Technical Committee for OPEC+ has been meeting this week to consider increasing output cuts by an additional 500,000 barrels per day or to extend current cuts beyond March. OPEC+ ministers are due to meet on March 5 and 6.
Oil prices have slumped more than 20 per cent since reaching their highest this year on Jan. 8 on demand concerns caused by the virus outbreak and oversupply indications.
A technical market indicator known as the relative strength index, which measures buying and selling momentum, suggests that prices have fallen too far, too fast and investors may be buying futures in response.
In the last two days, commodities, equities and other markets have been buoyed by unconfirmed reports of a possible advance in producing treatment drugs for the coronavirus that has shut down transport and limited industrial activity in China.
However, the World Health Organization has played down the reports of “breakthrough” drugs being discovered.
A further 73 people on the Chinese mainland died on Wednesday from the virus, the highest daily increase since the outbreak started, and another 3,694 new cases were reported, raising the total to 28,018.
Commodity supply chains in China have been disrupted to the extent that short-term sales of crude oil, along with liquefied natural gas, fell to nearly zero this week.
While oil prices have gained in the past two days, the front month contracts of both Brent and WTI remain in contango , a situation where longer-dated futures trade at a premium to shorter dated ones, a sign that the market sees ample supply or falling demand for crude.