In its latest report on the oil market, OPEC cut first-quarter oil demand growth estimate by 440,000 barrels per day, citing the coronavirus outbreak. The full-year oil demand growth outlook was cut by 230,000 barrels per day to 0.99 million barrels per day. Furthermore, the cartel warned that the market will face a surplus of 570,000 barrels per day in the second quarter. Also, the organization noted that coronavirus outbreak adds to uncertainties for oil market this year, and the situation needs continuous monitoring.
In fact, the downward revision shouldn’t surprise investors, as there were earlier speculations about the potential impact from the virus on the oil market. The revision could also be a sign that the cartel is leaning toward additional output cuts to support the struggling market. Anyway, investors now stay in limbo, waiting on a verdict from Russia regarding the proposal by the technical committee to cut production by additional 600,000 barrels per day.
Oil prices have barely reacted to the report, continuing to struggle marginally above the $55 handle. Earlier in the day, Brent has encountered a local resistance around $55.40 but was rejected from last Friday’s highs as the market lacks the impetus despite positive risk sentiment.
Later today, the EIA will reveal its weekly report that could affect oil prices in the near term. as a reminder, the API release pointed to a rise in crude oil inventories by 6 million barrels. So, should the official report come as less bearish, the futures may accelerate the intraday gains and get back above the $55.50 region. Still, the possibility of a sustained break above $56 remains low as long as traders waiting on the decision from Russia. Also, strong dollar caps the bullish momentum in Brent at this stage. On the other hand, downside risks have receded now, as risk-on trades prevail and coronavirus concerns abate further. On the upside, an important target comes around $56.50, while the key support arrives at the $53 handle.