Oil futures climbed on Wednesday, finding support as a slowdown in the number of new, confirmed cases of COVID-19 in China may translate into a smaller-than-feared hit to crude demand.
Prices pared some of their earlier gains, however, after U.S. government showed a third straight weekly rise in crude inventories that was bigger than market expectations.
Before the petroleum supply figure came out Wednesday, “we saw strength in crude as fears on the virus have subsided,” said Tariq Zahir, managing member at Tyche Capital Advisors.
“We firmly due feel the story has not been written on the virus outbreak,” he said. “The absence of new cases developing here in the U.S. is reassuring…[but] here is no doubt that China will experience a demand drop off [that’s] quite significant.”
“If we see this spread further in Europe, or here in the U.S., we do expect demand to drop even further,” he added.
West Texas Intermediate crude for March delivery CLH20, +2.74% on the New York Mercantile Exchange rose $1.36, or 2.7%, to $51.30 a barrel. April Brent BRNJ20, +3.15%, the global benchmark, was $1.93, or 3.6%, higher, at $55.94 a barrel on ICE Futures Europe.
Data from the Energy Information Administration Wednesday revealed that U.S. crude supplies rose by 7.5 million barrels for the week ended Feb. 7. That followed increases in each of the previous two weeks. Analysts polled by S&P Global Platts forecast a rise of 2.3 million barrels, while the American Petroleum Institute on Tuesday reported a rise of 6 million barrels, according to sources.
The “crude build managed to even beat the lofty expectations set up by [Tuesday’s] solid build in the API report,” said Matt Smith, director of commodity research at ClipperData. The rise in crude supplies was “egged on by a jump in net imports, with only minor headwinds provided by a tick higher in refining activity.”
The EIA data also showed a supply decline of 100,000 barrels for gasoline, while distillate stocks fell by 2 million barrels. The S&P Global Platts survey had shown expectations for an increase of 700,000 barrels for gasoline supplies, but distillates were forecast to fall by 900,000 barrels.
On Nymex, March gasoline RBH20, +3.33% rose 3.4% to $1.5653 a gallon, while March heating HOH20, +2.40% was up 2.3% at $1.6638 a gallon.
March natural gas NGH20, +2.63% gained 2.9% to trade at $1.839 per million British thermal units ahead of Thursday’s EIA update on U.S. supplies of the fuel.
Meanwhile, China’s National Health Commission on Wednesday said that 2,015 new cases of the disease caused by a new strain of coronavirus that emerged in Wuhan, China had been reported over the last 24 hours, marking a second straight daily decline. That brought the number of cases in mainland China to 44,653, although experts have warned that a substantial number may have gone uncounted. The commission said there were 97 additional deaths from the virus in the last 24 hours, bringing the mainland total to 1,113.
“As the daily number of new cases continues to slide, the disease is seen to be manageable,” said Manish Raj, chief financial officer at Velandera Energy.
Also on Wednesday, the Organization of the Petroleum Exporting Countries cut its forecast for 2020 global crude demand growth by 230,000 barrels a day to 990,000 barrels a day, citing the impact of the contagion, which the World Health Organization classified as COVID-19, taken from the words “corona,” “virus” and “disease,” with the number representing the year 2019.
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