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Oil prices stabilized on Friday and look set for the first weekly gain following five weeks of steep losses. Brent has settled around $56.50 and struggles for direction after three days of gains. The futures received support marginally above the $53 handle early in the week and keep creeping higher since then, adding over 3% for the week. 

The recovery was due to some positive headlines from China, as the rate of virus spreading has slowed. But the number of infected people continued to grow on Thursday. In general, the contradictory signals from this front cap the upside potential in the oil market. Also, there is still heightened uncertainty across the global financial markets in the context of the potential consequences from the coronavirus on the world economy and thus on energy demand. 

At the same time, the leading agencies trim their forecasts for oil demand growth, citing the virus and its consequences. In particular, the International Energy Agency now expects to see the first quarterly contraction in global oil demand in over a decade. Demand is expected to fall by 435,000 barrels per day this quarter. 2020 demand growth forecast was revised lower by 365,000 barrels per day to 825,000 barrels a day, the lowest since 2011. Meanwhile, in its monthly report, OPEC cut its oil demand outlook by nearly 14%. Now, the organization expects demand to rise by 990,000 barrels per day. OPEC also warned that global oil demand growth will be depressed this year, citing uncertainties surrounding the coronavirus outbreak. 

At that, traders continue to wait for OPEC+ verdict on additional cuts in oil output, with Russia has yet to decide on cuts. Moscow said that they will announce their position “in due course”, with Saudi Arabia has been urging to make additional cuts in oil output in order to support the struggling market and lift oil prices.  

In the short-term, Brent needs to challenge the $56.50 area in order to exceed yesterday’s highs around $56.80 and target the $57 handle. However, the upside potential remains limited at this stage. Moreover, there is a possibility that the futures will get down and trim weekly gains as some traders may opt to take profit partially ahead of the weekend. 

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