Oil’s rebound from 18-year low comes as economies attempt a recovery
SINGAPORE (Bloomberg) --Oil rebounded on Thursday after plunging on Wednesday to its lowest level in 18 years, as policymakers across the globe try to strengthen economies against the impact of the coronavirus pandemic.
The rise in futures in New York follows a 24% rout in the previous session. Prices had cratered over the past two weeks, as major producers hiked output in a fight for market share while demand fell off a cliff. Signs of stress are already showing in some corners of the world, with Canadian oil at a record low and some North Sea fields becoming uneconomic.
The European Central Bank has unleashed an emergency bond-buying program, while the U.S. Senate cleared the second major bill responding to the outbreak, in an attempt to kick-start the economy. White House economic adviser Larry Kudlow said the government might take equity positions as part of corporate rescues.
Countries are ramping up measures, as the global spread of the virus continues to gather pace with the number of confirmed cases in Europe now exceeding the figure in China. Italy’s death count has surged to almost 3,000, while the UK imposed tighter controls on movement of people, including closing all schools.
“We are heading into the most oversupplied market in the history of the oil market,” said DNB Bank ASA senior analyst Helge Andre Martinsen. “We might hit full utilization of global oil inventories in the months to come.”
As the world’s biggest oil producers boost supply, U.S. Republican Senator Kevin Cramer (R – N.D.) called on President Donald Trump to ban crude imports from Russia, Saudi Arabia and other OPEC members, in response to recent action taken by them to “distort energy markets” when demand is already weak. The Saudis ordered state-run Aramco to keep output at a record-high 12.3 MMbopd over the coming months.
The higher supply is increasingly taking its toll on the oil market’s structure. Brent’s six-month time-spread is currently at its most bearish since 2009, indicating a big glut. As a result, traders are eyeing the lucrative opportunities from storing oil on tankers and hoping to sell it at a profit later.
With crude’s price weakness getting more entrenched, traders are increasingly trying to assess the impact on U.S. production this year. On Thursday, a barrel of Permian oil was cheaper than the cost of a meal at a steakhouse in the region’s Midland heartland, a sign that producers are struggling to cover their operating costs.
