Oil extends gains amid optimism for coordinated effort to offset virus

The coronavirus or COVID-19, which originated in China, has spread to over 60 countries and has killed more 3,000 people globally

Oil prices extended gains on Tuesday on expectations that central banks are likely to enact financial stimulus to offset the impacts of the coronavirus outbreak and growing optimism that OPEC will order deeper output cuts this week.

Brent crude rose $1.40 per barrel, or 2.7 percent, to $53.30 per barrel by 0940 GMT. US West Texas Intermediate (WTI) rose $1.48 cents, or 3.2 percent, to $48.23 a barrel. Both futures contracts rose by more than three percent earlier in the session.

Brent and WTI rebounded somewhat over the past 2 days

Oil industry
Oil industry Pixabay

Brent and WTI have rebounded somewhat over the past two days from a more than 20 percent drop from their January 2020 peak on signs the spread of the coronavirus had dented fuel demand. "It is challenging to describe the month as anything other than quite the roller coaster," said RBC commodity strategist Christopher Louney.

"Yet a humbled rally and ongoing demand concerns for energy do not look particularly promising for flows for the time being." G7 finance ministers will also discuss this week how best to cushion the impact of the outbreak on economic growth, French Finance Minister Le Maire said on Monday. That is occurring as other major central banks have promised monetary and fiscal stimulus.

Coronavirus spread to over 60 countries

The coronavirus, which originated in China, has spread to more than 60 countries and has killed more 3,000 people globally. With lingering worries over oil demand amid the virus outbreak, several key members of the Organization of the Petroleum Exporting Countries (OPEC) are mulling a bigger oil output cut of possibly one million barrels per day (bpd). The previous proposal was for an additional reduction of 600,000 bpd.

OPEC and its allies, a group known as OPEC+, are expected to announce deeper output cuts at their meeting on March 5-6 in Vienna. The group had agreed to cut output by 1.7 million bpd in a deal that runs to the end of March.

Leonid Fedun, vice-president of Russia's second-biggest oil producer Lukoil, said OPEC's proposal to cut oil production by up to one million barrels per day would be enough to balance the market and lift oil prices back to $60 a barrel. Fedun's comments suggest Russia may be willing to agree to OPEC's proposals for fresh cuts to output.

Oil stockpiles in the United States, the world's biggest crude producer and consumer, are expected to rise for a sixth week by 3.3 million barrels, while refined product inventories are forecast to fall, according to Reuters poll.