SINGAPORE (Feb 18): Oil snapped the longest run of daily gains this year as investors assessed the demand hit from the coronavirus and stimulus measures being rolled out to cushion its economic impact.
Markets are overconfident in expecting a v-shaped recovery and oil prices are likely to remain weak during the first half of the year, according to Citigroup Inc. China has pledged a raft of fiscal stimulus measures, while Singapore plans to deliver a strong budget to counter the slowdown on tourism and trade.
The outbreak has curbed travel and hit supply chains across the world, with Chinese refineries continuing to trim processing rates and Apple Inc saying it won’t be able to meet its revenue guidance for the March quarter due to work slowdowns and lower smartphone demand. Brent oil rallied the past five days amid optimism the worst economic impacts had been accounted for.
“Markets are taking a view that this will be a temporary deferral of demand, rather than destruction,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney. “I don’t agree. I think, the destruction of demand will be significantly higher than the market is pricing at the moment.”
Brent for April settlement lost 48 cents, or 0.8%, to $57.19 on the ICE Futures Europe exchange as of 10:11am in Singapore after closing 0.6% higher on Monday. The global benchmark crude trade at a premium of $5.11 to West Texas Intermediate.
WTI futures traded 24 cents lower from Friday’s close at $51.81 a barrel. There was no settlement Monday due to the Presidents Day holiday in the US.