Oil prices rebounded this week after being pummeled for the last month by economic concerns stemming from the spread of the coronavirus.
Those fears remain in place, but oil traders saw some positive headlines elsewhere.
China’s central bank lowered its benchmark lending rate, injecting a dose of stimulus into the world’s second-largest economy.
Libya’s oil production remains a trickle — roughly 120,000 barrels per day (bpd) — caused by a blockade of the country’s oilfields and ports.
The US government sanctioned a subsidiary of Russian oil company Rosneft for allegedly helping Venezuela’s Maduro regime sell oil abroad.
ICE Brent futures strengthened on the news. The front-month contract is flirting with $60 per barrel after dropping more than $15/b (-23%) between Jan 6 and Feb 10.

Source: IntercontinentalExchange (ICE)
The same turnaround was apparent in Brent’s timespread. The contract for front-month delivery returned to a premium against the second-month (i.e. backwardation), which is a sign of robust demand for spot barrels.
The front/second-month spread turned negative (i.e. contango) Feb 3 until Feb 13.

Source: ICE
“Oil traders are anticipating a deep but short-lived drop in consumption, with the impact concentrated in the first three months of the year and gradually fading in the second and third quarters,” wrote John Kemp, a Reuters oil market columnist.
In our last two blogs, we discussed the chain reaction caused by travel restrictions: transportation fuel demand declines, refineries scale back crude purchases, and inventories rise.
How much oil inventories rise depends on the supply-demand balance. One factor helping mitigate lost demand has been less supply from major oil producers.
OPEC and Russia, along with other producers, decided before the coronavirus outbreak to implement a deeper round of production cuts starting Jan 1.
What’s been the evidence so far? Have global crude inventories built significantly since the coronavirus outbreak began?
While everyone is looking at China, our country-wide measurements have yet to show a clear trend higher as a result.
Ursa measures crude inventories around the world, including China, on a weekly basis using radar satellite imagery.
Here’s a look at China’s commercial crude inventories, as a percentage of capacity:

Source: Ursa
One place where inventories have been rising in China is Shandong Province where the majority of the independent refineries are located.
These plants have reportedly cut runs, but then returned to the spot market hungry for barrels to capitalize on the recent price drop.

Source: Ursa
With fewer tankers arriving in China, you have to also consider where that supply is going instead?
The vast majority of Asia’s crude imports come from the Middle East, so it’s also possible crude inventory builds will materialize there instead.
As a region, crude inventories in the Middle East & North Africa have been rising since the start of 2020.

Source: Ursa
The impact of the coronavirus on global oil demand will no doubt be one of the biggest topics of conversations when the industry gathers in London starting Feb 24 for a week of networking events.
This year’s get-together will be smaller than usual. Why? You guessed it. The coronavirus has disrupted travel plans for many folks, causing event cancellations.
A team from Ursa will be there again this year. Here’s a summary of what happened last year.
We’ll let you know all about this year’s event. Stay tuned.