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James Hyerczyk

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Friday as investors continue to increase bets that OPEC and its allies will come through with the production cuts a technical committee recommended last week. The price action also suggests that traders are a little more optimistic that the coronavirus outbreak has reached a peak and that the demand crisis may be ending.

At 10:58 GMT, April WTI crude oil is trading $52.28, up $0.63 or +1.23% and April Brent crude oil is at $57.16, up $0.82 or +1.47%.

OPEC, IEA Predict Lower Demand Growth in 2020

On Wednesday, OPEC cut its forecast for oil demand growth this year, saying the coronavirus outbreak was the primary reason. The cartel said it now expects 2020 daily oil demand growth to be 990,000 barrels per day (bpd), which is 230,000 bpd below prior forecasts.

On Thursday, the International Energy Agency (IEA) said, oil demand is set to fall year on year in the first quarter for the first time since the depths of the financial crisis in 2009 hurt by the coronavirus outbreak in China, the International Energy Agency (IEA) said on Thursday.

In the second quarter it said it expected oil demand to grow 1.2 million barrels per day before normalizing in the third quarter with growth of 1.5 million bpd on likely economic stimulus measures in China.


U.S. Energy Information Administration Weekly Inventories Report

The Energy Information Administration (EIA) said on Wednesday that U.S. crude supplies rose by 7.5 million barrels for the week-ended February 7. Traders were looking for a 2.9 million barrel build.

The EIA data also showed a supply decline of 100,000 barrels for gasoline, while distillate stocks fell by 2 million barrels. Traders were expecting gasoline inventories to rise 700,000 barrels, however, distillates were forecast to fall by 900,000 barrels.

Daily Forecast

The fact that investors ignored the huge crude oil build indicates the focus for traders is on the OPEC+ plan to make additional cuts to production. Traders have been waiting for a week for the lone holdout, Russia, to finally agree to the move. Last week, the major producer said it needed more time, but I think the bearish OPEC and IEA forecasts will encourage Russia to sign off on the deeper cuts.

Short-covering should drive prices higher if Russia announces it is going along with the output cuts, but gains will be limited since the cuts will not be enough to overcome the demand decline. If Russia passes on the cut, then this will be a disaster. Prices will plunge to multiyear lows.

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