Oil gains as optimism grows economic impact of coronavirus outbreak may be brief; OPEC likely to hike supply cuts

Tokyo: Oil prices gained 1 percent on Wednesday, with Brent rising a seventh straight day, amid broad optimism as new coronavirus cases fell for the second day in China and concerns rose oversupply after a US move to cut more Venezuelan crude from the market.

Brent crude was up by 59 cents, or 1 percent, at $58.34 a barrel, while US oil was up 55 cents, or 1.1 percent, at $52.60 a barrel.

China is still struggling to get manufacturing going again in the world’s second-largest economy, after imposing stringent city lockdowns and travel restrictions to contain the virus that has now killed more than 2,000 people, but investors remain optimistic that the economic fallout may be short-lived.

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Representational image. Reuters

Official data showed that new cases in China fell for a second straight day, although the World Health Organisation (WHO) has cautioned there is not enough data to know if the epidemic was being contained.

Brent has risen nearly 10 percent since hitting a low for this year so far last week, most recently supported by a US decision on Tuesday to blacklist a trading subsidiary of Russia’s Rosneft that President Donald Trump’s administration said provides a financial lifeline to Venezuela’s government.

The United States slapped sanctions on Rosneft Trading SA, the Geneva-based unit.

The Swiss subsidiary “has been Venezuela’s primary conduit for brokering cargos, which find their way predominantly to refineries in India and China,” said Stephen Innes, chief market strategist at AxiCorp.

“Throttling this Asian supply channel will provide some support for oil prices,” he said.

Prices have also been supported by hopes that the Organisation of the Petroleum Exporting Countries (OPEC) and its allies will deepen supply cuts.

The grouping, known as OPEC+, has been withholding supply to support prices and meets next month to decide a response to the downturn in demand resulting from the coronavirus epidemic.

OPEC+ wants to “prevent the emergence of a large supply overhang caused by slumping demand amid the health crisis centred in China, the world’s biggest importer of crude oil,” Eurasia Group said in a note.