WASHINGTON (DTN) -- Following the biggest daily rout in more than 30 years, oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange shifted higher in early trade Tuesday, with U.S. crude benchmark adding as much as 10% in value after the Trump Administration signaled a massive new stimulus package to shield the U.S. economy against widening turmoil caused by the coronavirus outbreak.
U.S. President Donald J. Trump on Monday said he will be seeking "major" policy changes as soon as this week to arrest the recent carnage across markets, hinting at potential payroll tax and paid sick leave for families. During a news conference, Trump said, "We are evaluating several options, so nobody will miss a paycheck. We are taking care of the American public."
Trump's comments made clear that the White House is considering a huge and expensive government response to the worsening COVID-19 epidemic domestically. Late Monday, the Securities and Exchange Commission became the first federal agency to ask its employees to work from home due to the scare of pandemic.
Spurred by Trump's comments, U.S. stocks are looking to bounce back after the worst daily drop in over a decade. Dow Jones Industrials futures indicate an opening surge of 1,079 points and S&P 500 were up 5% in overnight futures activity. Both benchmark indexes plunged over 7% in the previous session, causing a rare shutdown of trading activity known as "circuit breakers."
In early trading, nearby delivery month West Texas Intermediate futures surged $3.18 to near $34.18 per barrel (bbl) and the May Brent contract gained $3.42 at $37.79 bbl. NYMEX April RBOB futures advanced 8.74 cents to $1.2243 gallon and NYMEX April ULSD futures bounced back 10.67 cents from a multiyear spot low $1.1629 gallon settlement.
Crude futures fell over 25% on Monday amid a potent one-two punch of pandemic scare and escalating price war between Saudi Arabia and Russia that threw the market under the bus at a time when global oil demand took a massive hit.
International Energy Agency on Monday lowered its estimates for world's oil consumption rate by 1.1 million barrels per day (bpd) for 2020 and now sees an annualized drop of 90,000 bpd. If realized, this will be the first full-year decline in global oil demand since the financial crisis of 2008. Despite the dire forecast, the Paris-based agency sees world consumption eventually returning to a normal rate of growth in the second half of the year.
"The immediate outlook for the oil market will ultimately depend on how quickly governments move to contain the coronavirus outbreak, how successful their efforts are, and what lingering impact the global health crisis has on economic activity," said IEA.
Meanwhile, the world's two largest oil producers are locked in a bitter price war after the allies failed to unify a policy response to the developing demand shock. Saudi Arabia upped the ante in its break with Russia on Tuesday by announcing its production rate next month would exceed 12.3 million bpd from the current 9.7 million bpd. Over the weekend, Riyadh cut its official selling price for all crude exports to all destinations in an apparent swipe at Russia.
Russia's oil minister Alexander Novak said Monday the country is ready to open its taps and reassured investors that the nation's oil industry will remain competitive under any price forecast.
Some analysts, however, warn that the biggest victim of Saudi-Russian fallout will be U.S. shale.
Liubov Georges can be reached at firstname.lastname@example.org
Copyright 2020 DTN/The Progressive Farmer. All rights reserved.