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Oil advanced for a second day after an OPEC+ committee recommended a larger supply cut to offset lost demand from the spread of the coronavirus.
Crude futures rose 0.9% in New York on March 3. Ahead of OPEC meetings later this week, the group’s Joint Technical Committee recommended an output cut of 600,000 to 1 million barrels a day. The proposal helped insulate oil from a broader market decline that followed an emergency rate cut by the U.S. Federal Reserve, which investors worried wouldn’t be enough to thwart the economic impacts of the virus.
“Today’s rally is about OPEC,” says Andrew Lebow, senior partner at Commodity Research Group. “It looks like they’ll make a substantial cut, and it could bring the oil market closer to equilibrium.”
The Organization of Petroleum Exporting Countries and allied nations will meet March 5-6 to discuss measures to shore up slumping oil prices in the face of the spreading virus.
Global petroleum demand is forecast to take a steep hit as the virus spreads more widely, with Morgan Stanley cutting its demand growth forecast for 2020 to 500,000 barrels a day while Goldman Sachs sees global oil demand shrinking 150,000 barrels a day, the lowest annual growth rate since the 2008-09 financial crisis.
West Texas Intermediate futures for April delivery rose 43 cents to settle at $47.18 a barrel on the New York Mercantile Exchange. Brent futures for May settlement fell 4 cents to $51.86 on the ICE Futures Europe exchange, putting its premium over WTI at $4.53.
The Fed, the central bank in the world’s largest economy, announced an emergency half-percentage point interest rate reduction after Group of Seven finance chiefs pledged to shelter their economies from the spreading contagion. The total number of coronavirus cases worldwide topped 90,000 on March 3.
“The stimulus is encouraging but that’s not moving the timetable for coronavirus recovery and the impact to oil demand,” says Stewart Glickman, an analyst at CFRA Research. “The hope is that OPEC makes a substantial cut to production to meet oil fears head-on. It’s uncertain if it will be enough because they’re trying to hit a moving target.”
Central banks in Saudi Arabia, the United Arab Emirates and Bahrain matched the Fed’s half-percentage point cut, hours after Chairman Jerome Powell said the fallout from the virus had increased risks to the U.S. economic outlook.
Alex Longley, Craig Torres, Grant Smith, Salma El Wardany and David Marino contributed to this report.
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