Oil falls for third day as virus concern outweigh supply cuts

LONDON (Reuters) – Oil fell towards $56 a barrel on Tuesday, declining for a third session, as concerns about the spread of the coronavirus and its impact on oil demand outweighed OPEC output cuts and Libyan supply losses.

Crude fell almost 4% on Monday, with other commodities also posting losses while U.S. and European equities suffered their steepest declines since mid-2016 on concern the coronavirus outbreak could turn into a pandemic. [MKTS/GLOB]

Brent crude slipped 26 cents to $56.04 a barrel by 1105 GMT, giving up earlier gains. U.S. West Texas Intermediate crude was down 25 cents at $51.18.

“The Covid-19 virus and resulting risks to demand cannot be expected to disappear from the news any time soon,” said Commerzbank analyst Eugen Weinberg.

South Korea aims to test more than 200,000 members of a church at the centre of a surge in coronavirus cases. The virus is also spreading in Europe and the Middle East.

Concern about the demand impact from the virus has pushed down Brent crude by almost $10 a barrel this year despite the involuntary shutdown of most of Libya’s output as well as a supply pact between the Organization of the Petroleum Exporting Countries (OPEC) and its allies.

Prices received further support as lawmakers based in areas of eastern Libya on Monday said that they would not participate for now in peace talks.

“Libyan peace talks appear to have taken a further blow with both sides announcing the end of their participation, pointing to lost crude volumes from the country carrying on for now,” JBC Energy analysts said in a report.

However, oil could come under more pressure from the latest U.S. supply reports.

Crude inventories are expected to rise for a fifth week running. The first of this week’s two supply reports, from the American Petroleum Institute (API), is due at 2130 GMT.

Potential support for prices could also come from OPEC and allies including Russia, which are considering whether to curb output further to offset slowing demand. However, scepticism is growing about the chance of further action.

“Doubts are emerging about the willingness of OPEC+ to extend and expand the necessary production cuts,” said Commerzbank’s Weinberg. The producers are due to meet in Vienna over March 5-6 to decide policy.

Saudi Arabia’s energy minister on Tuesday said that OPEC+ should not be complacent about the coronavirus. But Russia, key to any deal, has yet to announce its position on further curbs.