OPEC and Russia may be looking to offset the negative impact on demand from the Coronavirus by reducing production, reports Phil Flynn.
Stocks and oil prices have mounted a rebound on hopes that the markets, the Federal Reserve and OPEC, can get ahead of the Coronavirus. Oil traders are taking statements out of OPEC to mean that the cartel, along with its co-conspirator Russia, will do what it takes to support prices. Right now, estimates are that demand destruction is about 200,000 barrels-per-day, yet that number may be low considering reports that the death toll from the virus is again rising and there is more restriction on travel in and out of China.
China is now reporting there are 5,974 cases in China and at least 132 deaths. China Premier Li Keqiang is saying that the virus is spreading and that the situation is “still complex”.
The Wall Street Journal reported that British Airways became the first global airline to cancel service to and from mainland China as the virus spread beyond Asia. Both the United States and Britain put out statements saying that people should avoid all non-essential travel to China. Beijing health officials says that the risks of Coronavirus infection in the city are rising.
Still, even if the demand destruction is twice what the cartel plus one is saying, they can quickly reduce output by a similar amount. Yet the more barrels of demand that are lost, the harder it might be for OPEC to stay united and keep cutting.
The markets are also looking to the Fed to try to get ahead of the Coronavirus. The growing threat of a negative impact on the global economy will force the Fed to give their take on how they plan to respond to the risk. Already Fed Fund Futures traders are signaling that they expect the Fed to cut rates in September, yet the Fed may have to indicate a more aggressive plan.
The Bank in China is taking action by cutting interest rates for small companies in Hubei province.
Turmoil in Libya has sharply reduced output and exports are on a path towards zero, which is providing some support for crude prices.
The API also reported a big crude draw of 4.27 million barrels. Products were mixed with gasoline being up 3.27 million barrels and distillates down 141,000.
Trade strategy may be key to ride out the crazy moves that will come with the headlines so keep in touch with our daily analysis. Makes sure you are getting my Daily Trade Levels! Read Phil’s energy report at Price Futures Group. Twitter: @energyphilflynn | Facebook: Phil Flynn
Not a Subscriber but want to be? Click Here!
