(Bloomberg) — Oil prices bounced back from the lowest in more than a year on Tuesday but the emergence of a glut since the coronavirus outbreak loomed over the market as traders look to store excess crude on tankers.
The world’s largest oil traders are seeking to hoard crude on vessels at sea as the industry tries to deal with the oversupply that’s developed as the outbreak wreaked havoc on Asia’s largest economy. Chinese energy importers are struggling to cope with swelling stockpiles, with one declaring force majeure, as travel bans and quarantines weigh on fuel demand.
The growing glut and dithering by OPEC and its allies over whether to hold an emergency meeting in response have pushed the oil market into a structure known as contango, where near-term prices trade at a discount to future contracts. And, while oil rebounded somewhat on Tuesday amid a broader move up in financial markets, the contango for U.S. crude remained at the widest in four months.
“Crude remains under pressure from worries over demand destruction from the coronavirus,” said Vandana Hari, founder of Vanda Insights. “Prices are likely to continue drifting lower in tandem with the progression of the epidemic.”
West Texas Intermediate crude for March rose 1.1% to $50.11 a barrel on the New York Mercantile Exchange at 10:59 a.m. Singapore time. It fell 1.5% on Monday. Brent crude for April climbed 1.3% to $53.96 a barrel on the London-based ICE (NYSE:ICE) Futures Europe exchange. The global benchmark crude traded at a $3.65 premium to WTI for the same month.
Vitol SA, Royal Dutch Shell (LON:RDSa) Plc and Litasco SA are among firms asking about hiring supertankers for storage purposes as a sharp drop in Chinese demand due to the coronavirus prompts requests for cargo deferments, according to people familiar with the matter, shipbrokers and oil traders.
The Organization of Petroleum Exporting Countries is unlikely to meet in February to discuss the effect of the virus on oil markets, leaving the possibility of further production cuts up in the air. Technical experts had earlier recommended a further supply cut of 600,000 barrels a day until June, said OPEC delegates, who asked not to be named because talks were private.