Oil Finds Firmer Ground After Fed Unleashes Support Measures
Brent futures rose for a second session, approaching $28 a barrel, as the U.S. central bank said it would buy unlimited amounts of Treasury bonds and mortgage-backed securities, and set up programs to ensure credit flows to corporations. The move saw U.S. equity futures reach their upper trading curbs.
Meanwhile, U.S. Energy Secretary Dan Brouillette said the possibility of a joint U.S.-Saudi oil alliance is one idea under consideration to stabilize prices, though proposals to curtail output were criticized by some regulators and drillers in Texas.
Despite oil’s gains on Tuesday, the broader market remains in dire health. The benchmark for global physical supply was at its weakest since 2002 on Monday, while gasoline in the U.S. crashed, highlighting the glut in both oil and products markets. IHS Markit estimates that global oil demand in the second quarter will contract by 14 million barrels a day, while Sanford C. Bernstein & Co. forecasts consumption could drop by as much as 20% this half.
“We advise caution and have limited optimism about the short-term outlook for prompt crude prices,” said Bjornar Tonhaugen, head of oil markets at consultants Rystad Energy. The “extreme” imbalance between supply and demand “has only just begun to unfold in the physical markets.”
Oil refiners across the U.S. are having to throttle back operations amid the historic plunge in gasoline demand and prices. In Chicago, wholesale motor-fuel prices fell to just 15 cents a gallon, less than a fistful of bubble gum. Meanwhile, OPEC producer Nigeria offered to sell its crude in April at unusually large discounts, and traders said the country may not have gone cheap enough.
Those discounts are set to force crude into storage, though traders may find they can’t fill tanks quickly enough, Citigroup Inc. analysts wrote in a report. As a result, the oil futures curve is set to weaken further, they said, testing the ability of producers to keep pumping.
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