Off The Wire
Oil rises on Fed steps to support economy, hopes of U.S. aid package
NEW YORK (Reuters) - Oil rose about 2% on Tuesday after the U.S. Federal Reserve said it would take step to bolster the economy and on growing hopes the United States will soon reach a deal on a $2 trillion coronavirus economic package.
The market was substantially off the day’s highs, however, and analysts remain pessimistic that oil prices will stage an extended recovery amid the worsening coronavirus pandemic and the ongoing oil price war between Saudi Arabia and Russia.
Brent LCOc1 futures gained 77 cents, or 2.8%, to $27.79 a barrel by 10:33 a.m. EDT (1433 GMT), while U.S. West Texas Intermediate (WTI) crude CLc1 rose 10 cents, or 0.4%, to $23.46.
Earlier in the session both Brent and WTI were trading up over 5%.
The Fed on Monday rolled out an array of programs that includes backing for corporate bond purchases for the first time. U.S. Treasury Secretary Steven Mnuchin said he was confident that a deal on an aid package would be reached soon as well.
“This is giving significant buoyancy to oil prices, at least in the short term,” said Commerzbank analyst Eugen Weinberg.
“It is highly questionable whether the good mood will continue on the oil market, however.”
The expected stimulus pushed the U.S. dollar lower against other currencies .DXY. A weaker dollar tends to support the price of oil and other dollar-denominated commodities.
The price of oil has halved in 2020, hit by the demand shock caused by the coronavirus pandemic and government restrictions to contain it, and the sudden removal of measures by the Organization of the Petroleum Exporting Countries and other producers to limit supply.
A deal by OPEC and allies, including Russia, fell apart in early March, when Moscow refused to support further output curbs and OPEC responded by removing limits on its own production.
Saudi Arabia now plans to boost exports, although they have yet to increase in March, sources at companies that track oil flows said on Monday.
“The extreme imbalance between supply and demand due to the travel restrictions has only just began to unfold in the physical markets, and the true impact will be felt in the coming weeks,” said Rystad Energy’s head of oil markets, Bjornar Tonhaugen, in a note.
The latest round of weekly U.S. oil reports are expected to show crude inventories rose for a ninth straight week.
Industry group the American Petroleum Institute (API) is scheduled to release its supply report at 2030 GMT, followed by the U.S. government’s figures on Wednesday.
Additional reporting by Alex Lawler in London, Sonali Paul in Melbourne and Jessica Jaganathan in Singapore; Editing by Marguerita Choy and Jan Harvey