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Oil fell, snapping a five-day rally, amid renewed fears over the impact on the global economy and fuel demand from Asia’s deadly coronavirus.
Brent futures fell 2.3% to trade near $56 a barrel in London, slipping with equity markets as Apple Inc. warned it will fail to meet sales targets this quarter because of disruption from the virus. Chinese refineries continue to trim processing rates, and at least two trading houses have rented crude-oil storage tanks in South Korea as a supply glut looms.
Citigroup Inc. said that markets had become overconfident in expecting a V-shaped rebound from the epidemic and oil prices are likely to remain weak during the first half of the year.
The supply-chain recovery in China could be problematic despite the stimulus pledge from Beijing, Citigroup analysts including Edward Morse said in a note to clients. Total Chinese product demand may drop by about 3.4 million barrels a day in February and be 1.5 million barrels per day lower on average in the first quarter.
Brent oil rallied the past five days — the longest run of gains this year — amid optimism the worst economic impacts of the coronavirus had been accounted for. China pledged a raft of fiscal stimulus measures to offset the disruption, and Singapore planned to boost spending to counter the slowdown in tourism and trade.
“The short-covering rally failed to gain traction, with the overhang of supply weighing on the market,” said Ole Sloth Hansen, head of commodities strategy at Saxo Bank A/S in Copenhagen. “Activity is slowly picking up, and while oil demand for storage has remained robust, the demand for products remains low. The market will have to live with this being — at best — a W-shaped recovery rather than a V-shaped one.”
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Brent for April settlement fell $1.21 to $56.46 on the ICE Futures Europe exchange as of 1:16 p.m. in London. West Texas Intermediate futures for March delivery declined $1.02 from Friday’s close to $51.03 a barrel. There was no settlement Monday due to the Presidents’ Day holiday in the U.S.
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— With assistance by James Thornhill
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