Oil gains amid market uncertainty over virus stimulus plans

Japan is also considering handing out cash to households as it may face recession after a sharp contraction of growth before the outbreak

Oil prices rose on Thursday, bucking panic selling in other markets, as investors tried to assess the impact of massive central bank stimulus in putting a floor under plummeting fuel demand from the coronavirus pandemic.

Brent crude was up $1.06 cents, or 4.3 percent at $25.94 a barrel by 0730 GMT, having earlier surged as high as $27.19. The global benchmark slumped 13 percent on Wednesday in a third day of relentless selling. US oil gained $2.11, or 10.4 percent, to $22.48 after rising nearly 20 percent earlier. The US benchmark dropped nearly 25 percent in the previous session.

Gains are likely to be temporary

Oil industry
Oil industry Pixabay

However, the gains are likely to be temporary, analysts and traders said, as the market suffers not only a demand shock but also a supply jolt, with the collapse of an agreement this month between OPEC and other major producers to withhold production. Saudi Arabia, the defacto leader of the Organization of the Petroleum Exporting Countries (OPEC), which kicked off a price war with Russia that has pushed prices down by around a half, is planning to keep pumping at a record rate of 12.3 million barrels per day (bpd) for months.

"From 1 April, about 4.0 million bpd could flood the markets, potentially pushing down crude oil prices into the teens," Jefferies said in a note. "Unless somebody intervenes, no oil producer benefits from the current environment." US senators on Wednesday upped the pressure on Saudi Arabia and Russia to stop the price war while holding talks with the kingdom's U.S. envoy and also urged President Donald Trump to impose an embargo on oil from the two countries.

Algeria's energy minister said late on Wednesday "there are also positive signals from China that it is overcoming coronavirus which will have a positive impact on demand in China," the world's biggest importer of crude. Still, analysts are slashing growth forecasts 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.

European Central Bank kicked off a 750 billion euro emergency bond

As central banks move to mitigate the spiralling economic and financial fallout from the epidemic, the European Central Bank kicked off a 750 billion euro ($820 billion) emergency bond purchase scheme after an unscheduled meeting on Wednesday. Japan is also 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 the global economy will be in a better position once it is behind the virus," said Edward Moya, senior market analyst at OANDA in New York. 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 disease 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.