Oil prices jumped over 8% on Tuesday, bouncing from the biggest rout in
nearly 30 years a day earlier, as the possibility of economic stimulus
encouraged buying and U.S. producers slashed spending in a move that
could cut output.
U.S. President Donald Trump pledged “major” steps to gird the U.S.
economy against the impact of the spreading coronavirus outbreak.
Japan’s government said it planned to spend more than $4 billion in a
second package of steps to cope with the virus on Monday.
U.S. shale producers, including Occidental Petroleum Corp, deepened spending cuts that could reduce production.
“There was almost an immediate response from U.S. producers to cut
spending that will likely result in diminished U.S. oil output in the
months ahead,” said John Kilduff, partner at Again Capital LLC in New
York, noting “The rapidity of that response helped buoy the market after
Monday’s collapse.”
Oil plunged about 25% on Monday. It rebounded on Tuesday along with equities and other financial markets.
Brent futures LCOc1 rose $2.86, or 8.3%, to settle at $37.22 a barrel.
U.S. West Texas Intermediate (WTI) crude CLc1 rose $3.23, or 10.4%, to
settle at $34.36.
“The oil price went up today because it went insanely down yesterday,
and some bargain hunters are driving things up,” said Bjoernar
Tonhaugen, head of oil markets at energy consultant Rystad, noting “It
will go down further with some days going up in between.”
Both benchmarks plunged on Monday to their lowest since February 2016,
their biggest one-day percentage declines since Jan. 17, 1991, at the
outset of the first Gulf War.
Trading volumes in the front-month for both contracts were well below
the record highs seen on Monday, when volumes soared after Saudi Arabia,
Russia and other major oil producers ended three years of cooperation
to limit supply and started a price war for market share.
Saudi, 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, according to Saudi Aramco CEO Amin Nasser.
“Oil prices have managed to hold on to some gains despite Saudi Arabia’s announcement to open the floodgates in April,” Rystad’s Tonhaugen said, noting “Saudi Arabia is not bluffing and the market will feel it next month.”
- Reuters
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