Oil extended a rebound from its biggest crash in a generation as the prospect of US stimulus to shield against the fallout from the coronavirus tempered fears over an unprecedented supply-demand shock.
Brent crude rose around 3 per cent in London and has now recouped almost half of Monday's collapse. US president Donald Trump pitched a payroll tax holiday and relief for the travel and hospitality sectors to combat the virus's impact, while some Republican senators suggested a bailout for the shale industry.
That was after Saudi Arabia upped the ante its oil price war with Russia, pledging to supply a record 12.3 million barrels a day next month in a massive increase to flood the market. Moscow responded within minutes, with Energy Minister Alexander Novak saying Russia had the ability to boost production by 500,000 barrels a day.
The Trump administration's willingness to revive the economy comes after the disintegration of OPEC+ and subsequent plunge in oil prices threatened the US shale industry and spurred an indiscriminate sell-off in markets already reeling from the coronavirus. However, investor hopes were tempered when the president didn't appear at a White House briefing Tuesday after promising a day earlier he'd hold a news conference to announce major stimulus.
"The market rally based on Trump's economic stimulus alone is unlikely to be sustainable" given the amount of crude that will soon be hitting the market, said Howie Lee, an economist at Oversea-Chinese Banking Corp. "Any meaningful rebound will either come from coronavirus fears fading away, or Saudi Arabia and Russia returning to the negotiating table."
Meanwhile, the American Petroleum Institute reported that US inventories increased by 6.41 million barrels last week, according to people familiar with the data, highlighting the lack of demand. That would be the seventh straight weekly expansion if confirmed by Energy Information Administration figures due later on Wednesday.
Expectations for a "major" fiscal stimulus package by the US have underpinned sentiment, Stephen Innes, chief Asia market strategist at AxiCorp, said in a note. But there's still potential for this to fall through, he said. – Bloomberg