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11 March 2020

Oil rebounds from worst loss on hopes for stimulus

Futures climbed about seven per cent in New York, after plunging 25 per cent as US President Donald Trump said his administration will discuss a possible payroll tax cut with Congress

Oil prices are still vulnerable to an escalating clash between Saudi Arabia and Russia/Bloomberg

by Bloomberg

Oil rebounded from its worst loss since 1991 on speculation that potential US tax cuts may shield the market against the economic impact of the coronavirus and a price feud between major producers.

Prices are still vulnerable to an escalating clash between Saudi Arabia and Russia, who announced substantial production increases after their pact to manage supplies dissolved acrimoniously last week.

The fragile state of global markets was reflected in US equities, which erased gains that reached 3.5 per cent in another wild session on Wall Street on fears that the stimulus promised by President Trump was not imminent.

The Trump administration’s willingness to provide stimulus comes as the collapse in oil prices spurred an indiscriminate sell-off in markets already reeling from the coronavirus. The US has ramped up its response to the market-share war waged by Russia and Saudi Arabia as the collapse of the OPEC+ alliance threatens the American shale industry.

The US suspended a planned sale of 12 million barrels of oil from the nation’s emergency reserves.

Additionally, Saudi Aramco stated that it will provide customers with an unprecedented 12.3 million barrels a day in April 2020, exceeding the Kingdom’s maximum sustainable rate of production, after slashing its official crude prices.

Russia’s largest producer said it will ramp up output next month, though Energy Minister Alexander Novak repeated that further cooperation with OPEC remains possible.

According to IHS Markit, the unprecedented supply-demand shock poses a serious threat to the US shale boom and oil-dependent economies in the Middle East, Africa and elsewhere and could push crude prices to 2016 and 2008 lows in the short-term.

The turmoil also reverberated across time-spreads and options. Brent for prompt delivery collapsed against later shipments. The structure, known as contango, is a sign of bearishness and oversupply and makes it profitable for physical traders to buy crude and put it into storage.

RELATED STORIES: Alexander Novak Saudi Aramco OPEC+ Russia





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