Thursday, March 12, 2020

Oil prices score a modest rebound after biggest drop since 1991

Published: March 10, 2020 at 3:21 p.m. By  Myra P. Saefong and Barbara Kollmeyer

Crude-oil prices rebounded on Tuesday, recouping a portion of their day-earlier losses as President Donald Trump said that the White House and Congress would meet to consider ‘very substantial’ economic relief measures to combat the coronavirus, boosting risk-on sentiment.
Tuesday’s rebound for oil is “relatively modest” compared to Monday’s plunge, said Tyler Richey, co-editor at Sevens Report Research. “We could easily see a retracement higher in prices in the days and weeks ahead.”
However, given the “major deteriorating market fundamentals,” including moves by the Organization of the Petroleum Exporting Countries and their allies to abandon production cuts and the slowdown in oil demand from the coronavirus outbreak, “we appear to be entering a dynamic similar to that of [the second half of 2014] when oil prices collapsed.”
The difference is that the market is “starting this period at a much lower price point—meaning the subsequent drop could be deeper and more painful this time around,” said Richey.
West Texas Intermediate crude for April delivery CLJ20, -4.882% rose $3.23, or 10.4%, to settle at $34.36 a barrel on the New York Mercantile Exchange. On Monday, the U.S. benchmark oil fell $10.15, or 24.6%, to end at $31.13, after briefly trading below $29 in early trade.
May Brent crude BRNK20, -5.001%, the global benchmark, rose $2.86, or 8.3%, to $37.22 a barrel. On Monday, the contract plunged $10.91, or 24.1%, to settle at $34.36 a barrel on ICE Europe.
“If one were to look for a silver lining from an oil price crash that took as much as 30% from its valuation within moments of the market open for the week is that it should have helped the commodity to find its bottom,” wrote Jameel Ahmad, global head of currency strategy and market research at FXTM, in a note Tuesday.
Monday’s percentage declines for both crude grades were the largest since January 1991 during the Gulf War. Tumbling oil prices came after Saudi Arabia over the weekend cut its export prices for crude in a move many saw directed at Russia’s refusal to back OPEC’s output cut plan.
OPEC had been pushing for members and Russia-led allies to deepen existing production cuts by 1.5 million barrels a day but Moscow rejected that move in talks that collapsed Friday without an agreement meaning existing curbs will expire at the end of March and OPEC members and nonmembers can pump freely.
The potential for a Saudi-Russia price war combined with concerns about the economic impact of the spreading coronavirus, to trigger chaotic financial markets on Monday. But oil rebounded Tuesday, as Asian and European markets rose, and U.S. benchmark stock indexes traded higher after Trump came forward with the outline of a relief plan. The Dow Jones Industrial DJIA, -5.85% on Monday had lost closed down 2,013.76 points, or 7.8%, at 23,851.02.
Saudi Aramco on Tuesday said it would boost crude available to customers to 12.3 million barrels a day in April. The company is estimated to have been pumping around 9.8 million barrels a day. Russia’s energy minister Alexander Novak, said Russia could potentially boost production by up to 500,000 barrels a day in the long term, but hadn’t closed the door to cooperation with OPEC in the future, S&P Global Platts reported. Reuters reported that Nigeria’s oil minister has pledged in the short term to ratchet up its oil output to over 2 million barrels per day to help compensate for the price plunge.
Risk appetite was boosted by a visit by Chinese President Xi Jinping on Tuesday to Wuhan, believed to be at the center of the coronavirus outbreak and hardest hit by the epidemic, while China reports fewer new cases in recent days.
Back on Nymex, April gasoline RBJ20, -7.953% tacked on 1.8% to $1.1571 a gallon. April heating oil rallied by 7.5% to $1.2499 a gallon, following a 16% drop a day earlier.
April natural gas NGJ20, -3.621% settled at $1.936 per million British thermal units, up 8.9%.
The recent drop in oil prices has raised expectations that U.S. crude producers may cut back drilling activity later this year, and with “more than 30% of domestic natural gas production coming from crude-focused regions, a decline in crude production will result in a decline in natural gas production as well,” said Christin Redmond, commodity analyst at Schneider Electric, in a daily note.
The American Petroleum Institute will release its weekly data on U.S petroleum supplies late Tuesday, with the Energy Information Administration due to release its figures Wednesday morning. Analysts polled by S&P Global Platts, expect the EIA to report a rise of 2.5 million barrels in crude stocks, on average, for the week ended March 6. They also forecast supply declines of 2.7 million barrels each for gasoline and distillate inventories.
The EIA said it has delayed the release of its monthly short-term energy outlook report to Wednesday, to “allow time to incorporate recent global oil market events.” OPEC is also scheduled to issue its monthly oil report Wednesday.

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