LONDON (Reuters) – Oil futures gave up early gains on Thursday despite possible action from the OPEC+ group of producers to counter an expected fall in oil demand as a consequence of the coronavirus outbreak.
A OPEC+ technical panel has recommended a provisional cut in oil output of 600,000 barrels per day (bpd), though Russia has yet to declare its position on the matter, two sources said.
Brent futures were down 88 cents at $54.40 a barrel by 1453 GMT, while U.S. West Texas Intermediate (WTI) futures were down 29 cents at $50.46.
The Joint Technical Committee (JTC) is not a decision-making body but advises the OPEC+ group comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia.
“Saudi Arabia seems ready to push for a very proactive and immediate production response,” bank RBC said in a note.
There was some price support, however, from optimism that trade tensions between China and the United States are easing.
China on Thursday said it would halve additional tariffs levied against 1,717 U.S. goods last year after the signing of a Phase 1 trade deal between the two countries.
This makes China’s goal to increase its U.S. purchases to $200 billion over the next two years more achievable,” JBC Energy said in a note.
Oil prices have fallen more than 20% since reaching their highest this year on Jan. 8 because of concerns the virus will lead to reduced demand and signs of oversupply.
(Graphic: Change in Brent crude oil prices since Jan 20, 2020, here)
The relative strength index, a technical market indicator that measures buying and selling momentum, suggests prices have fallen too far, too fast and investors may be buying futures in response.
Over the last two days, commodities, equities and other markets have been buoyed by unconfirmed reports of a possible advance in producing drugs to counter the coronavirus, which 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 from the virus on Wednesday, the highest daily increase since the outbreak started, while 3,694 new cases raised 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 LCOc1-LCOc2, a situation where longer-dated futures trade at a premium to shorter-dated contracts, indicating the market sees ample supply or falling demand for crude.
(Graphic: Brent crude oil mkt flips to contango as coronavirus spread strangles China’s oil demand, here)
Additional reporting by Aaron Sheldrick in Tokyo; Editing by Jason Neely, David Goodman and Barbara Lewis