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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