The Daily Dose

Crude oil prices were in full rally mode early Wednesday on word of a possible breakthrough in the effort to control the outbreak of the novel coronavirus. A spokesperson for the World Health Organization, however, said “there are no known effective therapeutics” to treat the virus. Despite the cold-water statement, a Tuesday update on the outbreak from the global health agency found no new countries reported cases of the 2019-nCoV over the last 24 hours.

Brent as of 8 a.m. EST was oscillating around $55 per barrel. The global benchmark was up 2.5% from Tuesday’s close to $55.22 per barrel.

The coronavirus has been blamed for demand destruction, though economic pressures have been manifesting at least since the fourth quarter. Giving support to the early-morning rally was an upbeat position on the economy taken during US President Trump’s State of the Union address Tuesday evening. “An economic miracle is taking place in the United States,” the president declared.

Propped up by sweeping tax breaks, consumer confidence in the world’s largest economy is high, though raw data show spending levels are not running parallel to the optimistic sentiment. Demand in the US market is slowing. Figures from the American Petroleum Institute showed US crude oil supplies increased some 4.2 million barrels for the week ending January 31. Gasoline inventories grew by 2 million barrels, though distillates were drained by 1.8 million barrels. EIA data out Wednesday morning are expected to show similar results. 

The consistent build in US inventories shows demand has been problematic. On the impact of the coronavirus, demand implications run the gamut. According to Bloomberg, OPEC is expecting a decline in demand of about 400,000 barrels per day over six months in its worst-case scenario. S&P Global Platts saw things much worse, forecasting a demand hit of about 1 million bpd. If OPEC keeps pumping oil as it’s been, there would be a 600,000 bpd glut in the first quarter and a 1 million bpd glut in the second.

A roundup of the morning news shows Germany’s Purchasing Managers’ Index increased from 52.9 in December to 54.2 last month. ADP reported January payrolls grew by 291,000 jobs from December, though jobs in the natural resources and mining sectors of the US economy showed contraction. In the world, Iran is seemingly on a regional détente push and the US Senate is expected to acquit Trump on two impeachment charges. With good ADP numbers and emboldened by the SOTU, a Trump Bump is expected in Wednesday trading, though it could be a bumpy ride, particularly given the likelihood of OPEC chatter.