Oil pares gains as investors adopt wait-and-see approach

Tokyo — Oil prices rose on Thursday but pared early gains as investors tried to assess how effective huge stimulus by central banks will be in shoring up the global economy as the shock from the coronavirus pandemic deepens.

Bucking panic selling in other financial markets, Brent crude was up 37c, or 1.1% at $25.25 a barrel by 3.55am GMT, having earlier risen to $27.19. The global benchmark slumped 13% on Wednesday in a third day of relentless selling.

US oil gained $1.44, or 7.1%, to $21.81 after surging nearly 20% earlier. The US benchmark dropped nearly 25% in the previous session.

“After a 24% crash, oil prices are firming up on some selling exhaustion and as US and European leaders unleash … aid and stimulus,” said Edward Moya, senior market analyst at Oanda in New York.

Among the latest moves by a central bank to try to mitigate the spiralling economic and financial fallout from the epidemic, the European Central Bank (ECB) kicked off a €750bn ($820bn) emergency bond purchase scheme after an unscheduled meeting on Wednesday.

Japan is considering handing out cash to households as it faces the likelihood of recession after a sharp contraction of growth even before the outbreak, while South Korea and Australia also took action.

“Monetary and fiscal stimulus will do little in returning energy demand back to normal but it will build confidence that global economy will be in a better position once it is behind the virus,” Moya said.

Analysts are also slashing estimates for China, where the coronavirus outbreak originated, to the lowest since the Cultural Revolution came to an end in 1976, in a further grim outlook for the world’s second-largest economy and oil demand

The spread of coronavirus is showing no sign of abating internationally. Countries on every continent have resorted to drastic lockdowns to try to contain the virus that has now infected more than 200,000 people worldwide, killing more than 8,000. Many analysts say a major global recession is in prospect.

Oanda’s Moya cautioned that the selling could start again in oil markets.

“A bottom for oil is not in place, but we could finally see some stabilisation if financial markets can maintain a somewhat constructive tone with all the stimulus that is about to hit,” he said.

While oil investors try to get a grip on the demand shock from the pandemic, supply keeps flowing into the market as major producers fight for market share.

Saudi Arabia’s energy ministry has directed national oil company Saudi Aramco to keep supplying crude oil at a record rate of 12.3-million barrels a day in the coming months.

Reuters