Oil surges on hope of economic stimulus
Russia may smoke peace pipe with OPEC
Oil prices surged by around 8% on Tuesday, a day after the biggest rout in nearly 30 years as investors eyed the possibility of economic stimulus and Russia signalled that talks with OPEC remained possible.
U.S. President Donald Trump on Monday said he will be taking “major” steps to gird the U.S. economy against the impact of the spreading COVID-19 outbreak, while Japan’s government plans to spend more than $4 billion in a second package of steps to cope with the virus.
Brent crude futures were up $2.80, around 8%, to $37.16 a barrel by 7.24 p.m. IST, after hitting a session high of $38.22 a barrel.
West Texas Intermediate (WTI) crude gained $2.42, or around 8%, to $33.55 a barrel, after hitting a high of $34.60.
Both benchmarks plunged 25% on Monday, dropping to their lowest levels since February 2016 and recording their biggest one-day percentage declines since January 17, 1991, when oil prices fell at the outset of the first Gulf War.
Trading volumes in the front-month for both contracts hit record highs in the previous session after three years of cooperation between Saudi Arabia and Russia and other major oil producers to limit supply fell apart on Friday, triggering a price war for market share.
Saudi, the world’s biggest oil exporter, escalated tensions with plans to supply 12.3 million barrels per day (bpd) in April, well above current production levels of 9.7 million bpd, Saudi Aramco CEO Amin Nasser said.
April’s crude supply will be “300,000 barrels per day over the companys maximum sustained capacity of 12 million bpd,” Mr. Nasser said in a statement.
Joint steps with Russia
Russian Oil Minister Alexander Novak said he did not rule out joint measures with OPEC to stabilise the market, adding that the next OPEC+ meeting was planned for May-June.
But in response, Saudi Arabia’s Energy Minister said he did not see a need to hold an OPEC+ meeting in May-June if there was no agreement on what stepsshould be taken to deal with the impact of the COVID-19 on oil demand and prices.
“I fail to see the wisdom for holding meetings in May-June that would only demonstrate our failure in attending to what we should have done in a crisis like this and taking the necessary measures,” Prince Abdulaziz bin Salman said.
“Price wars and pandemics are nothing new to the commodity markets, but both occurring simultaneously is something we have yet to witness in our careers,” RBC analysts said.
Crude was also supported by hopes for a settlement to the price war and potential U.S. output cuts, although analysts warned gains may be temporary as oil demand continues to be hit by COVID-19 outbreak, which has spread beyond China and prompted Italy to implement a nationwide lockdown.
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