Oil prices jump as recent sharp falls draw investors

17 Mars, 2020, 14:55 | Auteur: Auguste Feret
  • Oil prices jump as recent sharp falls draw investors

Last week's price war began after OPEC kingpin Saudi Arabia pushed an informal alliance of major crude producers to slash output to combat the impact of the virus outbreak on prices.

The coming flood of supply from Saudi Arabia and other producers could result in the largest surplus of crude in history, said global information provider IHS Markit.

With the global oil benchmark, Brent crude, falling below the $30 per barrel mark on Monday, the oil-dependent Nigerian economy has come under more pressure from the sharp drop in government's expected revenue. The global benchmark earlier fell to $29.52 a barrel, its lowest since January 2016.

U.S. West Texas Intermediate (WTI) crude rose 3.2%, or 92 cents, to $29.62, having come off a high of $30.21.

Saudi Aramco has said it would likely carry over its planned higher oil output for April into May, and that it was "very comfortable" with an oil price of $30 a barrel.

The coronavirus outbreak, which has infected at least 174,000 people and killed around 6,700, already has caused oil prices to plummet by 50% since the start of the year.

U.S. President Donald Trump on Monday said economic disruptions from the spread of the coronavirus and measures taken against it could lead to a recession.

While coronavirus is causing weak global oil consumption and low economic activity around the world, Saudi Arabia and Russian Federation are preparing to ramp up their oil production levels in April - a move which is set to increase the glut of supply and put further pressure on prices.

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It estimates the surplus could range from 800 million to 1.3 billion barrels in the first six months of 2020 if the price war continues amidst a global recession and coronavirus pandemic.

The world is looking at the "possible buildup of the most extreme global oil supply surplus ever recorded", IHS Markit said in a report on Monday.

Crude oil prices were down during Monday's early trading despite the cut to near zero the U.S. Federal Reserve made on its benchmark interest rate during the second emergency meeting it held in a month to support the economy.

Closer to home, oil and gas (O&G) stocks across Bursa Malaysia continued to receive a beating by the market, save for several counters that experienced some bargain hunting from their recent lows.

Numerous US oil companies have swiftly cut spending, with analysts anticipating consolidation or restructurings.

Brent's premium to WTI is close to its narrowest since 2016, making USA crude oil uncompetitive in global markets. The move is aimed to help energy producers struggling from the price plunge.

President Trump has instructed the Department of Energy to buy oil for the nation's strategic petroleum reserve, which would help the US oil industry.

The United State now has more than 450 million barrels in crude storage, not including strategic reserves. "However, we will note that such supply represents a drop in the bucket in relation to the amount of oil consumed globally on a daily basis".

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