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Corona Virus to drive oil price


25 February 2020

The oil price has run into some resistance today after the longest rally in nearly 12 months on signs of tighter global supply, and expectations that Chinese economic stimulus will keep the world’s 2nd largest economy from falling into recession and keep the demand for oil steady

Another factor helping the price is predictions from the US that shale output, which has been hitting the market at record levels will taper off in the coming months which may leave a huge gap and supply shortages in the market. The halt of exports from OPEC member Libya is set to continue, and the US sanctions on Rosneft PJSC’s trading unit is bound to affect oil deliveries from Venezuela.

The Organization of Petroleum Exporting Countries and its allies seem to have given up on an emergency meeting to respond to the Corona virus, and will instead meet in March where they are expected to discuss production cuts although it remains to be seen whether all Opec members will jump on board. 

“The recent bounce back in oil prices has been driven by combination of sentiment and supply factors,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA. “There’s a slower pace of growth in U.S. shale basins, the threat to Venezuelan production, and no apparent resolution to the situation in Libya.” He added.

The containment of the Corona virus is seen as one of the main factors in helping the oil price as factories in China will be able to return to business as usual which will inevitably cause a sudden spike in demand for oil

“There’s more optimism that maybe this disease is peaking,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “The market is pricing in the possibility that we can get back to normal quicker, and that’s going to be very bullish for oil demand.” he added.

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