MOSCOW (MRC) -- Oil prices jumped by around 8% a day after the biggest rout in nearly 30 years as investors eyed the possibility of economic stimulus and Russia signaled that talks with OPEC remained possible, said Hydrocarbonprocessing.
U.S. President Donald Trump on Monday said he will be taking “major” steps to gird the U.S. economy against the impact of the spreading coronavirus outbreak, while Japan’s government plans to spend more than $4 billion in a second package of steps to cope with the virus.
Brent crude futures were up USD2.84, around 8%, to USD37.20 a barrel by 1228 GMT, after hitting a session high of USD38.22 a barrel.
West Texas Intermediate (WTI) crude gained USD2.53, or around 8%, to USD33.66 a barrel, after hitting a high of USD34.60.
Both benchmarks plunged 25% on Monday, dropping to their lowest levels since February 2016 and recording their biggest one-day percentage declines since Jan. 17, 1991, when oil prices fell at the outset of the first Gulf War.
Trading volumes in the front-month for both contracts hit record highs in the previous session after three years of cooperation between Saudi Arabia and Russia and other major oil producers to limit supply fell apart on Friday, triggering a price war for market share.
Saudi, the world’s biggest oil exporter, escalated tensions with plans to supply 12.3 million barrels per day (bpd) in April, well above current production levels of 9.7 million bpd, Saudi Aramco CEO Amin Nasser said on Tuesday.
April’s crude supply will be “300,000 barrels per day over the company’s maximum sustained capacity of 12 million bpd,” Nasser said in a statement received by Reuters. Price pared gains by over a USD1 on the news.
Russian oil minister Alexander Novak said he did not rule out joint measures with OPEC to stabilise the market, adding that the next OPEC+ meeting was planned for May-June.
But in response, Saudi Arabia’s energy minister told Reuters he did not see a need to hold an OPEC+ meeting in May-June if there was no agreement on what measures should be taken to deal with the impact of the coronavirus on oil demand and prices.
"I fail to see the wisdom for holding meetings in May-June that would only demonstrate our failure in attending to what we should have done in a crisis like this and taking the necessary measures," Prince Abdulaziz bin Salman said.
"Price wars and pandemics are nothing new to the commodity markets, but both occurring simultaneously is something we have yet to witness in our careers," RBC analysts said in a note.
"Such action will test the market’s self-balancing mechanism absent the backstop of OPEC, a mechanism that has not been tested since the U.S. shale boom was in its infancy," they added.
Sentiment was also lifted after Chinese President Xi Jinping visited Wuhan, the epicentre of the coronavirus outbreak, for the first time since the epidemic began, and as the spread of the virus in mainland China slows sharply.
China, the world’s second-largest oil consumer, is trying to get people in hard-hit Hubei province back to work by using a mobile phone-based monitoring system that will allow people to travel within the province.
Crude was also supported by hopes for a settlement to the price war and potential U.S. output cuts, although analysts warned gains may be temporary as oil demand continues to be hit by the virus outbreak, which has spread beyond China and prompted Italy to implement a nationwide lockdown.
U.S. shale producers rushed to deepen spending cuts and could reduce production after OPEC’s decision to pump full bore into a global market hit by shrinking demand. “When you look at the leverage the industry is in, at prices of around USD30, it’s not profitable,” said Jonathan Barratt, chief investment officer Probis Group.
As MRC informed earlier, global stocks plunged on Monday and prices for crude oil tumbled as much as 33% after Saudi Arabia launched a price war with Russia, sending investors already worried by the coronavirus fleeing for the safety of bonds and the yen. Saudi Arabia had stunned markets with plans to raise its production significantly after the collapse of OPEC's supply cut agreement with Russia - a grab for market share reminiscent of a drive in 2014 that sent prices down by about two-thirds.
We remind that, as MRC wrote previously, in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,093,260 tonnes in 2019, up by 6% year on year. Shipments of all PE grades increased. PE shipments rose from both domestic producers and foreign suppliers. The estimated PP consumption in the Russian market was 1,260,400 tonnes in January-December 2019, up by 4% year on year. Supply of almost all grades of propylene polymers increased, except for statistical copolymers of propylene (PP random copolymers).
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