Oil prices rebounded markedly (snapping a 5-day losing streak) from mid-October lows today on no particular news out of China at all (except bad news).
There’s some short-covering “after the worst-case demand scenario got priced in,” said John Kilduff, a partner at Again Capital LLC in New York. Sentiment improved after the sell off captured the attention of Saudi Arabia and China ramped up efforts to contain the outbreak, he said.
“They’ve shown the market they’re not going to take this lying down.”
For now, let's see what the initial impact of oil demand fears were on inventories.
Crude -4.27mm (+500k exp)
Cushing +1.02mm (-870k exp)
Gasoline +3.27mm (+1.3mm exp)
Distillates -141k (-1.1mm exp)
Despite expectations for a modest build, API reported a crude inventory drawdown of 4.27mm...
WTI was hovering around $53.50 ahead of the print, and jumped modestly higher on the API data...
Despite the gains on Tuesday, investors remain cautious of the pathogen’s potential to destabilize oil demand.
“There’s a wait-and-see attitude that seems to be driving markets right now,” said Steeves.
“The virus fears are really a question of how much demand destruction occurs and how long that lasts,” he said.
Finally, in the realm of hope, Ed Morse, head of commodities research at Citigroup, warned oil bears that OPEC+ could extend and deepen cuts at the next meeting in March to “take into account lower demand in the world” resulting from the coronavirus in China. Morse added that the latest oil price drop due to coronavirus is “overdone by about $5.”