Oil in dramatic rebound on hopes of truce in price war, economic stimulus

Oil prices made a spectacular rebound on Tuesday, rallying eight per cent a day after the biggest plunge in nearly 30 years on economic stimulus hopes as Russia signalled the possibility of a truce in the escalating price war resumption with Opec on output cuts.
Two major stimulus measures unveiled by the US and Japan to help respective economies withstand the devastating global impact of Covid-19 and signs of de-escalation in the Opec-Russia standoff in output reduction measures have helped to trigger the rally, oil market analysts said.
Brent crude futures jumped $2.84, around eight per cent, to $37.20 a barrel by 1228 GMT, after hitting a session high of $38.22 a barrel. West Texas Intermediate (WTI) crude gained $2.53, or around eight per cent, to $33.66 a barrel, after hitting a high of $34.60. Both benchmarks plummeted 25 per cent on Monday, dropping to their lowest levels since February 2016 and recording their biggest one-day percentage declines since January 17, 1991.
US President Donald Trump on Monday said he will be taking "major" steps to protect the U.S. economy against the impact of the spreading coronavirus outbreak, while Japan's government plans to spend more than $4 billion in a second package of steps to cope with the virus.
Analysts at Capital Economics said energy prices have been falling sharply since concerns about the coronavirus outbreak intensified. "But they have dropped dramatically on the news that Saudi Arabia will increase production from the end of this month and offer steep discounts to buyers. The price of Brent crude is now at $37 per barrel, its lowest level since early 2016 when fears of a China hard landing flared up."
Saudi Arabia, 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 on Tuesday.
April's crude supply will be "300,000 barrels per day over the company's maximum sustained capacity of 12 million bpd," Nasser said in a statement.
"Saudi oil policy seems to have shifted away from cutting output to prop up prices and towards regaining lost market share. It's not altogether clear what lies behind this shift in strategy. But the Saudi authorities had become increasingly frustrated with other oil producers' lack of compliance under previous deals to cut output and with Saudi Arabia's loss of market share to US shale producers," analysts at Capital Economic said.
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.
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 measures should be taken to deal with the impact of the coronavirus 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.
Sentiment was also lifted after Chinese President Xi Jinping visited Wuhan, the epicentre of the coronavirus outbreak, for the first time since the epidemic began, and as the spread of the virus in mainland China slows sharply.
China, the world's second-largest oil consumer, is trying to get people in hard-hit Hubei province back to work by using a mobile phone-based monitoring system that will allow people to travel within the province.
Crude was also supported by hopes for a settlement to the price war and potential US output cuts, although analysts warned gains may be temporary as oil demand continues to be hit by the virus outbreak, which has spread beyond China and prompted Italy to implement a nationwide lockdown. US 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.
"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.
- issacjohn@khaleejtimes.com