The prices of oil jumped by more than three percent on Wednesday after reports came in that scientists have developed a drug which can effectively treat the vast spreading coronavirus which has stirred the global economy.
Reports regarding the Organization of the Petroleum Exporting Countries and its allies for production are considering further output cuts in order to counter a potential squeeze of global oil demand further confirmed that it had collapsed by more than 20 percent since early January.
Both Brent crude oil futures LCOc1 and US West Texas Intermediate (WTI) crude CLc1 jumped by more than 3 percent in morning trade. By 1040 GMT Brent was up $1.36, or 2.6 percent, at $55.32 a barrel and (WTI) was up $1.19, or 2.4 percent, at $50.80.
China's Changjiang Daily, the official newspaper of the city of Wuhan where the virus outbreak began, reported on Tuesday that a team of researchers led by Zhejiang University professor Li Lanjuan have found that drugs Abidol and Darunavir can inhibit the virus in vitro cell experiments.
Separately, Sky News reported that a British scientist has made a significant breakthrough in the race for a vaccine by reducing part of the normal development time from two to three years to only 14 days. A vaccine will be too late for the current virus but the breakthrough will be crucial if there is another outbreak, Sky said.
The economic slowdown resulting from the virus outbreak is expected to reduce 2020 global demand growth by 300,000-500,000 barrels per day (bpd), roughly 0.5 percent of global demand, BP's Chief Financial Officer Brian Gilvary said on Tuesday.
"The (Chinese) economy will be weakened for some time to come as quarantines, social distancing and travel restrictions remain in place," BNP Paribas analyst Harry Tchilinguirian told the Reuters Global Oil Forum.
"But as financial markets are anticipatory, one can see how favourable news in relation to potential medical solutions, or indications that we have reached a turning point in the progress of the virus outbreak, are likely to be interpreted positively."
OPEC and allies led by Russia, a group known as OPEC+, weighed the impact on global oil demand and economic growth from the coronavirus outbreak at a meeting on Tuesday, hearing from China's envoy to the United Nations in Vienna.
Producers are considering further output cuts and moving a planned policy meeting to February rather than March. "This is a critical time for oil prices and even if we see OPEC+ deliver deeper production cuts, an extended shutdown of China will destroy demand for crude's top importer," said Edward Moya, an analyst at broker OANDA.
The US Energy Information Administration (EIA) will release its weekly report later on Wednesday. Data from the American Petroleum Institute showed on Tuesday that U.S. crude oil stocks rose by 4.2 million barrels to 432.9 million barrels in the week to Jan. 31, well above analyst expectations for a build of 2.8 million barrels.
(With agency inputs)