There was some welcome relief for the oil market this morning as key crudes showed price gains.
But the general trend has been downwards, as long-standing fears of a global slowdown have been intensified by the possible economic impact of the coronavirus.
Markets finely balanced
One month ago, on 3 February, Brent traded at $54.45 a barrel and WTI at $50.11, while three months ago, on 3 December, the respective prices were $63 and $56.10.
That suggests a rapid deterioration in sentiment in recent months compared with the relatively gentle decline over the last 12 months, from $65.67 for Brent on 4 March 2019 and $56.59 for WTI.
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Recession fears have been around for at least a year, with analysts suggesting the long post-crisis recovery has to run out of steam at some point. For those who have scanned the horizon for a trigger to bring about an end to the upswing, the coronavirus seems to fit the bill.
Oil markets are finely balanced, with supply and demand closely aligned at about 100 million barrels a day. Even the slightest upset can send prices skidding either up or down, and the impact of the coronavirus threatens to be anything but slight.
Already, the 14-nation energy cartel, the Organisation of Petroleum Exporting Countries (OPEC) has responded to the virus by proposing to extend a package of production cuts to support the price. Currently, OPEC and a number of sympathetic oil-producing countries that are not members have agreed to cut production by 1.7%, or about 1.7 million barrels a day, in a deal that is scheduled to run out at the end of March.
“Action in the interest of all”
But a key committee of the joint OPEC and “NOPEC” partners in the cuts arrangement has urged the cartel to let the deal run until the end of the year. OPEC conference president Mohamed Arkab, Algeria’s energy minister, said the coronavirus epidemic "has had a negative impact on oil demand and oil markets," adding: "The coronavirus epidemic is having a negative impact on economic activities, particularly on the transportation, tourism and industry sectors, particularly in China, and also increasingly in the Asian region and gradually in the world.”
He went on to say that “the situation is clear; it requires corrective action in the interest of all”.
OPEC said that: “The committee also recommended a further adjustment in production until the end of the second quarter of 2020.”
Reuters suggested on 3 February that additional cuts of 500,000 barrels a day were being considered, with an alternative plan being for Saudi Arabia temporarily to reduce production by a million barrels a day.