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Oil ends lower on reported rift in Saudi-Russian alliance as coronavirus feeds demand anxiety

Oil futures ended with a loss on Friday, pressured by a reported rift in the crude-production alliance between Saudi Arabia and Russia, as concerns about the spread of COVID-19 in China and beyond take a toll on expectations for energy demand.

Prices for the U.S. and global crude benchmarks, however, posted weekly gains, partly supported by efforts by China to stimulate the economy, which eased some concerns over the virus outbreak’s impact on the economy. U.S. government data on Wednesday also revealed a smaller-than-expected weekly rise in domestic crude inventories, along with declines in gasoline and distillate stocks.

West Texas Intermediate crude for April delivery CLJ20, -0.78%  on the New York Mercantile Exchange fell 50 cents, or 0.9%, to settle at $53.38 a barrel, while April Brent crude BRNJ20, -0.24% lost 81 cents, or 1.4%, to end at $58.50 a barrel on ICE Futures Europe. WTI tallied a 2% weekly rise, based on the front-month contract, while Brent added 2.1% for the week.

Saudi Arabia is weighing a break from a production alliance with Russia amid a disagreement between the oil heavyweights over the effect of China’s COVID-19 outbreak on global crude demand, The Wall Street Journal reported Friday.

The report said Saudi Arabia, Kuwait and the United Arab Emirates, which make up more than half the production capacity of the Organization of the Petroleum Exporting Countries, were holding talks to discuss a possible joint output cut of up to 300,000 barrels a day.

A “300,000-bpd cut would only partially compensate for the lost demand as a result of the coronavirus epidemic,” Marshall Steeves, energy markets analyst at IHS Markit, told MarketWatch. “The extent and duration of lost demand remains to be seen given that the outbreak has yet to peak and it isn’t clear when that might happen.”

“Russia has hesitated to agree to this round of cuts as they await signs of where demand is going,” he said. Russia is not part of the Organization of the Petroleum Exporting Countries but has worked with the group since December 2016 in an effort to balance global oil supply and demand.

Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, however, told Reuters that the report that the Saudis are considering a break from the alliance is “nonsense.”

OPEC and its allies, collectively known as OPEC+, are scheduled to hold meetings on March 5-6 in Vienna to discuss production and demand against a backdrop of worries surrounding COVID-19.

Prices for oil had climbed on Wednesday, in part due to expectations that the spread of the virus was slowing.

“The relief about the containment of the COVID-19 virus in China proved to be only short-lived,” said Carsten Fritsch, analyst at Commerzbank, in a note.

“For one thing, the situation in China is still far from normalizing. And for another, concerns about the virus spreading outside China are increasing, which is putting noticeable pressure on oil prices this morning,” Fritsch wrote.

The World Health Organization on Friday said there were 76,767 confirmed cases of COVID-19, with the death toll at 2,247. While the number of new cases world-wide slowed for a second day, analysts said concerns remain over the number of reported infections outside China. The WHI said there were 1,019 new cases world-wide, with 100 in South Korea, which has seen a large uptick in recent days.

While the viral outbreak has raised worries over global demand for crude, analysts said positive developments on the supply front, including strife in Libya, renewed pressure on Venezuelan exports could provide underlying support.

In other energy trading, March gasoline RBH20, -1.47%  fell 1.1% to $1.6506 a gallon, ending the week with a 4.3% climb, while March heating oil HOH20, -0.77%  lost nearly 0.7% to $1.6866, finishing the week with a loss of about that same amount.

March natural gas NGH20, -0.73%  shed 0.8% to $1.905 per million British thermal units, paring its weekly rise to 3.7%.