Coronavirus Outbreak: Oil prices jump 6% after biggest one-day fall since 1991 | The Business Standard
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SATURDAY, AUGUST 13, 2022
Oil prices jump 6% after biggest one-day fall since 1991

Global Economy

Reuters
10 March, 2020, 09:00 am
Last modified: 10 March, 2020, 12:46 pm

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Oil prices jump 6% after biggest one-day fall since 1991

Trading volumes in the front-month hit record highs in the previous session after a three-year pact between Saudi Arabia and Russia and other major oil producers to limit supply fell apart on Friday

Reuters
10 March, 2020, 09:00 am
Last modified: 10 March, 2020, 12:46 pm
The Philadelphia Energy Solutions oil refinery is seen at sunset in Philadelphia March 26, 2014. Picture taken March 26, 2014. Photo :Reuters
The Philadelphia Energy Solutions oil refinery is seen at sunset in Philadelphia March 26, 2014. Picture taken March 26, 2014. Photo :Reuters

Oil prices jumped more than 6% on Tuesday, clawing back some ground on hopes that a price war by top producers Saudi Arabia and Russia that sparked the biggest daily rout since the 1991 Gulf War will not be sustained.

US shale producers also rushed to deepen spending cuts and could reduce future production after OPEC's decision to pump full bore into a global market hit by shrinking demand due to the coronavirus outbreak.

Brent crude futures rose $2.31, or 6.7%, to $36.67 a barrel by 0115 GMT, while US West Texas Intermediate (WTI) crude gained $1.79, or 5.8%, to $32.92 a barrel following declines of nearly 25 percent on Monday.

Both benchmarks dropped to their lowest since February 2016 in the previous session and recorded their biggest one-day percentage declines since January 17, 1991, when oil prices fell at the outset of the US Gulf War.

Trading volumes in the front-month for both contracts hit record highs in the previous session, after a three-year pact between Saudi Arabia and Russia and other major oil producers to limit supply fell apart on Friday.

"When you look at the leverage the industry is in, at prices of around $30, it's not profitable," said Jonathan Barratt, chief investment officer Probis Group.

"Saudis and other Middle Eastern producers have their budgetary constraints, Russia is starved for cash and the breakeven for .. shale has to be around $50 a barrel. So the dynamics of all those put together will mean they will come to an agreement somewhere."

But analysts do not expect oil prices to quickly regain the nearly 25% slump from Friday's close as the coronavirus outbreak cuts demand.

"Oil prices rarely stay below the marginal cash cost of supply. But with the anticipated inventory build in (the first half) we struggle to find conviction in a snap back for oil," analysts from Bernstein Energy said in a note.

Energy stock prices have also fallen sharply, and shale producers began cutting spending in anticipation of lower revenues. Exxon shares lost more than 12%, the largest one-day percentage loss since October 15, 2008, the height of the financial crisis. Chevron's shares fell more than 15%, the biggest loss since the October 1987 "Black Monday" market crash.

Saudi Arabia plans to boost its crude output above 10 million barrels per day (bpd) in April from 9.7 million bpd in recent months, two sources told Reuters on Sunday. The kingdom slashed its export prices at the weekend to encourage refiners to buy more.

Russia, one of the world's top producers alongside Saudi Arabia and the United States, also said it could lift output and that it could cope with low oil prices for six to 10 years.

One the demand side, the International Energy Agency said oil demand was set to contract in 2020 for the first time since 2009. The agency cut its annual forecast and said that demand would contract by 90,000 bpd in 2020 from 2019.

World+Biz / Top News

Oil / oil market / Oil price / Brent crude / crude oil

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