SINGAPORE- Oil prices edged lower on Monday as investors brace for economic data in Asia due this week that should give a reading on how China’s coronavirus epidemic has affected oil demand.
Brent crude was at $56.99 a barrel, down 33 cents after rising 5.2 percent last week, the biggest weekly gain since September 2019.
US West Texas Intermediate crude fell 13 cents to $51.92 a barrel, after a 3.4 percent gain last week.
The weekly gains, the first since early January, were spurred by hopes that stimulus measures taken by China to support its economy amid the coronavirus outbreak could lead to a recovery in oil demand in the world’s largest importing country.
But the International Energy Agency (IEA) said the virus is already set to cause oil demand to fall by 435,000 barrels per day (bpd) in the first quarter from the same period a year ago, in what would be the first quarterly drop since the depths of the financial crisis in 2009.
Analysts at Capital Economics said over the weekend that it is too soon to start assessing the longer-term economic fallout from the epidemic.
“Attention will be paid (this week) to the range of flash manufacturing PMIs (purchasing managers’ indices) for February, particularly those in Asia, as these should provide an early indication of how significantly the virus is affecting global manufacturing supply chains,” Capital Economics said.
“We expect the data to be weak, but if they are better-than-expected then industrial commodity prices could see further gains.”
Investors are also anticipating that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, will approve a proposal to deepen production cuts in a move to tighten global supplies and support oil prices.
The group, also known as OPEC+, has an agreement to cut oil output by 2.1 million bpd until the end of March.
A technical committee has recommended the group reduces production by another 600,000 bpd because of the impact from the coronavirus on China’s oil demand.
Russia, facing a growing oil glut, could support further output cuts.
A sustained drop in oil prices to $40 a barrel as the world weans itself of fossil fuels would cut Gulf exporters’ sovereign ratings by two notches over time, leaving the average credit score just above ‘junk’, S&P Global said on Sunday.
A report by the agency said a “hypothetical long-run stress test” where oil prices fell to below $40 by 2040 suggested the average rating of Gulf sovereigns could fall by two notches from ‘BBB+’ to ‘BBB-’.
Hydrocarbons contribute, on average, 81% of central government revenues for Gulf sovereigns – the countries of the Gulf Cooperation Council plus Iraq – and the pace of economic diversification is expected to remain gradual.
Brent crude prices fell to almost $53 last week but have be averaging just over $60 since tumbling down from over $115 a barrel in 2014.
Under S&P’s $40-a-barrel scenario, every exporter country would see a least one rating cut, the report said.
By 2027, the paper estimated a deterioration in countries’ fiscal positions would push the average rating of Gulf sovereigns down to ‘BBB’ from ‘BBB+’.
As it got closer to 2040 they would fall again, dropping the average down to ‘BBB-’, the last rung of the coveted investment grade bracket that tends to improve a country’s borrowing costs. — Reuters
