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Price of oil is on the rebound

By Lawrence Gash

US futures indicate a bounce after the largest plunge seen since the 1991 Gulf War

Oil rebounds following Mondays plunge

The price of oil has rebounded thus far in Tuesday trading. This is in part thanks to signs of recovery in China but also on the increasing expectation of stimulus on both sides of the Atlantic.

By late-morning trading Brent and West Texas Intermediate crude oil futures gained by 8.27 and 9.06 per cent respectively. Such a surge comes a day after the largest oil price plunge seen since the first Gulf War in 1991.

After Russia rejected a proposal by OPEC to buoy the commodity through major output cuts, Saudi Arabia slashed its oil price triggering a sell-off in the already startled markets. The Covid-19 virus had significantly reduced demand for oil, particularly from China.

While Donald Trump welcomed lower oil prices as “good for the consumer,” he attributed the more than 7 per cent plunges experienced on America’s stock markets to Saudi Arabia and Russia’s “arguing… and the fake news”.

The US president had regularly pointed to stock market highs as evidence of his administration’s success. It is unsurprising therefore that White House officials and advisers have rushed to arrest any further losses.

On top of an $8.3bn (£6.3bn, €7.3bn) spending package set aside for coronavirus-related relief, the Trump administration is now considering a payroll tax cut. At a recent press conference the US President stated: “We are going to be… discussing a possible payroll tax cut or relief, substantial relief, very substantial relief.”

DOW futures, which reached their 5 per cent limit in Sunday trading, have rebounded ahead of Tuesday’s opening and indicate a 1,000 point bounce. S&P 500 futures, which also hit their downside limit on Sunday night, hit their 5 per cent upside limit ahead of Tuesday trading.

Such a rebound would mirror indices across the Atlantic, which have also rebounded on stimulus hopes. At the time of writing the FTSE 100 stands up 3.64 per cent, while the pan-European Euro Stoxx 50 has gained by 3.21 per cent.

The price of oil has also been helped by positive news from China. For the first time president Xi Jinping has visited Wuhan, the epicentre of the Covid-19 virus, in a public relations move meant to indicate an end to the major disruption.

As the number of new infections dramatically falls in the world’s second-largest economy, it is hoped that demand for oil will pick up again.

Nonetheless, the tension between Saudi Arabia and Russia looks set to continue, with the Russian finance ministry minimising the impact of the kingdom’s decision and arguing that it can withstand an oil price of $25-$30 per barrel for up to 10 years.

Saudi Arabia, in the meantime, needs oil prices of around $80 in order to balance its books.

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FURTHER READING: Italy is on total lockdown

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