By Jessica Jaganathan, SINGAPORE
Malaysia
Oil
prices bounced back 7% on Tuesday from the biggest one-day rout in nearly 30
years, as investors eyed the possibility of economic stimulus despite a price war
between top producers Saudi Arabia and Russia.
FILE PHOTO: Drilling rigs operate at sunset in Midland, Texas |
President Donald Trump on Monday said he will be
taking “major” steps to gird the U.S. economy against the impact of the
spreading coronavirus outbreak and will discuss a payroll tax cut with
congressional Republicans on Tuesday.
Brent crude futures rose $2.51, or 7.3%, to $36.87
a barrel by 0418 GMT, while U.S. West Texas Intermediate (WTI) crude gained
$2.15, or 6.9%, to $33.28 a barrel.
Both benchmarks plunged 25% on Monday, dropping to
their lowest since February 2016 and recording their biggest one-day percentage
declines since Jan. 17, 1991, when oil prices fell at the outset of the U.S.
Gulf War.
Trading volumes in the front-month for both
contracts hit record highs in the previous session after a three-year pact
between Saudi Arabia and Russia and other major oil producers to limit supply
fell apart on Friday.
“In times of turmoil, nothing is more important in
restoring confidence than the government appearing calm and in control of the
situation, how tenuous that control may be,” said Jeffrey Halley, senior market
analyst at broker OANDA in a note.
Asian shares bounced and bond yields rose from
historic lows as speculation of coordinated stimulus from global central banks
and governments calmed panic selling.
Crude was also supported by hopes for a settlement
and potential U.S. output cuts, although gains could be temporary as oil demand
continues to be hit by the economic impact of the coronavirus outbreak,
analysts said.
“Oil’s rally right now will likely be short-lived
as the drivers for both the supply and demand side will remain bearish for
now,” said Edward Moya, senior market analyst at OANDA.
Saudi Arabia plans to boost its crude output above
10 million barrels per day (bpd) in April from 9.7 million bpd in recent
months, and has slashed its export prices to encourage refiners to buy more.
Russia, one of the world’s top producers alongside
Saudi Arabia and the United States, also said it could lift output and that it
could cope with low oil prices for six to 10 years.
U.S. shale producers rushed to deepen spending cuts
and could reduce production after OPEC’s decision to pump full bore into a
global market hit by shrinking demand due to the coronavirus outbreak.
“When you
look at the leverage the industry is in, at prices of around $30, it’s not
profitable,” said Jonathan Barratt, chief investment officer Probis Group.
“Saudis and other Middle Eastern producers have
their budgetary constraints, Russia is starved for cash and the breakeven for
.. shale has to be around $50 a barrel. So the dynamics of all those put
together will mean they will come to an agreement somewhere.”
On the demand side, the International Energy Agency
said oil demand was set to contract in 2020 for the first time since 2009. -
Reuters
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