By Jackie Davalos
China, the world’s second largest economy and key driver of oil demand, resorted to unprecedented measures to slow the outbreak, including extending the Lunar New Year holiday and a lock-down in the country’s major cities and provinces. At least two-thirds of China’s economy will stay shut next week, as residents are being told not to return to work or school, or to avoid congregating in public places.
The plunge in oil prices has prompted a push led by Saudi Arabia for the Organization of Petroleum Exporting Countries and its allies to hold an emergency session in February, with Russia signaling for the first time on Friday it was open to holding the meeting earlier.
The coalition is considering a proposal to deepen current production curbs by about 500,000 barrels a day, though there’s no consensus on the idea yet, according to consultant Energy Aspects Ltd. As the oil producer group and its partners, a 23-nation coalition known as OPEC+, have already made steep cutbacks recently, analysts have been skeptical on how much more they’re willing to do.
See also: OPEC+ Weighs Emergency Response as Oil Slumps on Virus Panic
“This virus is requiring more out of the group as the demand picture gets weaker,” said Rebecca Babin, a senior equity trader at CIBC Private Wealth Management.
West Texas Intermediate crude for March delivery fell 58 cents to settle at $51.56 a barrel on the New York Mercantile Exchange, after sliding as much as 2.2% during the session.
Brent for March delivery, which expired Friday, lost 13 cents to $58.16 a barrel on the London-based ICE Futures Europe exchange, and sank 12% in January. The more active April contract slid 71 cents to $56.62 a barrel. April Brent was $4.94 a barrel above WTI for the same month.
In addition to the drop in outright prices, the market’s structure showed further signs of the market malaise. April Brent’s premium over May contracts falling by about more than one-third to just 20 cents a barrel. The December 2020-December 2021 spread, a closely watched indicator of the market’s strength, shrank 70 cents a barrel, the lowest since the end of October. On Jan. 6, it closed at $4.05.
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