Oil Price Fundamental Daily Forecast – Buyers Losing Patience with Russia Over Production Cut Decision

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower shortly before the regular session opening on Tuesday. The markets are being pressured by worries over the impact on oil demand from the coronavirus outbreak in China and the lack of progress by OPEC and its allies toward additional production cuts.

At 12:23 GMT, April WTI crude oil futures are trading $51.30, down $1.01 or -1.93%. April Brent crude oil is at $56.45, down $0.87 or -1.54%.

Risk aversion has returned to the markets on Tuesday with traders concerned the economic impact of the coronavirus on China’s economy will be worse than expected. Furthermore, others feel the negative impact on the economy is spreading to other nations in the Asia Pacific area with Thailand, Singapore and New Zealand issuing lower growth forecasts and Japan on the brink of recession after posting poor fourth-quarter GDP numbers on Monday.

Central banks and governments are either issuing stimulus or talking about future stimulus, which means they see conditions worsening. Apple Inc., a major component of China’s supply chain, said it would miss quarterly revenue guidance owning to weakened demand in China.

Traders are starting to pay less attention to the death toll from the coronavirus and whether the virus has peaked. Instead they are focusing on real economic data, which is expected to show greater than expected damage to the global economy.

Last week, both the International Energy Agency (IEA) and OPEC lowered their demand estimates for the year because of the virus. The IEA last week said that first-quarter oil demand is likely to fall by 435,000 barrels per day (bpd) from the same period last year in the first quarterly decline since the financial crisis in 2009.

OPEC and its allies, including Russia, have been considering further production cuts to tighten supply and support prices. Recently an advisory panel recommended to lower supply by a further 600,000 barrels per day (bpd). This is on top of their pledge to cut oil output by 1.7 million bpd until the end of March.

However, the plan stalled when Russia said it needed more time to study the situation before making a decision on whether to go along with the production cuts.

Traders are beginning to lose patience with Russia, which is one reason for today’s weakness. Furthermore, talks on holding an early meeting in February went nowhere, which means OPEC+ won’t meet until March. Traders are not going to wait that long for potentially bullish news that has limited upside value.

In other news, today’s normally scheduled American Petroleum Institute (API) weekly inventories report has been moved to Wednesday at 21:30 GMT.