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Oil Finds Firmer Ground After Fed Unleashes Support Measures


By Ann Koh and Alex Longley

(Bloomberg) Oil rallied with other risky assets after the U.S. Federal Reserve unveiled a sweeping set of measures to support the world’s largest economy.

Futures in London rose for a second session by as much as 6%, to almost $29 a barrel, as the U.S. central bank said it would buy unlimited amounts of Treasury bonds and mortgage-backed securities and also set up programs to ensure credit flows to corporations as well as state and local governments. The move saw U.S. equity futures reach their limit up band.

Meanwhile, U.S. Energy Secretary Dan Brouillette said the possibility of a joint U.S.-Saudi oil alliance is one idea under consideration to stabilize prices, though proposals to curb output were criticized by some regulators and drillers in Texas.

While oil pared some losses Tuesday, the broader market remains in dire health. A key North Sea grade was its weakest since 2008 on Monday, while gasoline in the U.S. crashed, highlighting the glut in both oil and products markets. IHS Markit estimates that global oil demand in the second quarter will contract by 14 million barrels per day, while Sanford C. Bernstein & Co. forecasts consumption could drop by as much as 20% this half.

“Crude oil has been trying to consolidate above $25 Brent for the last three days,” says Petromatrix managing director Olivier Jakob. “At current price levels focus is going to be back on production,” as high-cost producers struggle to keep pumping, he said.

Prices:
  • West Texas Intermediate traded 5.9% higher at 10:55 a.m. in London reaching $24.73 a barrel
  • Brent gained 4.5% to $28.25 a barrel

Oil refiners across the U.S. are being forced to throttle back operations amid the historic plunge in gasoline demand and prices. In Chicago, wholesale motor fuel prices fell to just 15 cents a gallon, less than a fistful of bubble gum. Meanwhile, OPEC producer Nigeria offered to sell its crude in April at unusually large discounts, although traders said the West African country may not have gone cheap enough.

Those discounts are set to force crude into storage, though traders may find they can’t fill tanks quick enough, Citigroup analysts including Eric Lee wrote in a report. As a result, the oil futures curve is set to weaken further, they said, testing the ability of producers to keep pumping.

Other oil-market news
  • Europe’s Big Oil is curbing investor returns and taking the ax to spending as the market crash hammers earnings.
  • As much of Europe goes into lockdown due to the coronavirus, the region is set to send more refined oil products such as naphtha to an already oversupplied Asia.
  • Petroleos Mexicanos’s battle for market share on the U.S. Gulf Coast is jump-starting Latin American oil sales, even as refiners reduce operations amid plunging fuel demand and collapsing prices.


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