NEW YORK (Reuters) – U.S. crude oil prices spiked by 25% on Thursday, the largest single-day gain on record, recouping some losses from three days of selling that drove the benchmark to near 20-year lows.
Analysts saw the rebound as a brief reprieve, anticipating additional weakness as the coronavirus outbreak takes its toll on global demand. U.S. crude and global benchmark Brent have both lost half their value in less than two weeks, most of that since March 6, the day talks between OPEC and allies including Russia broke down.
The coronavirus outbreak has put pressure on the market as schools and businesses have shuttered, suppressing economic activity around the globe. At the same time, the price war between Saudi Arabia and Russia is flooding markets worldwide with cheap oil.
Oil extended gains late in the day after U.S. President Donald Trump said on Thursday he would get involved in the dispute between Saudi Arabia and Russia “at the appropriate time.”
West Texas Intermediate (WTI) crude CLc1 settled up $4.85, or 24%, to $25.22 after dropping nearly 25% to an 18-year low in the previous session. It then briefly extended gains in post-close trading to as much as 35%.
Brent crude LCOc1 settled up $3.59, or 14.4%, at $28.47 a barrel, having plunged to $24.52 on Wednesday, its lowest since 2003.
“After yesterday’s drubbing, people are coming into the market, because they see some production cuts ahead, but those are not enough to offset the demand in decline that the market is going to see in April and May,” said Andrew Lipow, president of Lipow Oil Associates.
In a sign of expectations for reduced demand, Colonial Pipeline Co, which operates the largest refined products pipeline system in the United States, said it was cutting volumes by 20%. That system brings gasoline, diesel and other fuels to the U.S. East Coast from refineries in the U.S. Gulf.
Oil’s respite came as investors across financial markets assessed the impact of massive central bank stimulus measures. U.S. lawmakers were rushing on Thursday to forge a massive economic stimulus package to counter the impact of the outbreak. [MKTS/GLOB]
Central banks have moved to mitigate the spiraling economic and financial fallout from the pandemic, with the European Central Bank kicking off a 750 billion euro ($820 billion) emergency bond purchase scheme.
Following the breakdown of talks between Saudi Arabia and Russia, the de facto leader of OPEC announced plans to increase supply to a record 12.3 million barrels per day (bpd) and cut the official selling price for its oil by several dollars per barrel.
In the United States, where dozens of shale oil and gas drillers and services companies risk bankruptcy, senators on Wednesday urged the two countries to halt their price war during talks with the kingdom’s envoy to Washington.
Trump noted, however, that low gasoline prices were good for U.S. consumers even as they were hurting the industry. “At the appropriate time I’ll get involved,” he said.
The drop in demand, particularly in transportation, is also leading to a rapidly growing glut in refined products such as jet fuel and gasoline.
“From April 1, about 4 million bpd could flood the markets, potentially pushing down crude oil prices into the teens,” Jefferies analysts said in a note.
Reporting by Jessica Resnick-Ault; Additional reporting by Aaron Sheldrick and Ron Bousso; Editing by Sonya Hepinstall and Peter Cooney