Meanwhile, California contemplates relaxing lockdown rules: File Image/PixaBay
Although the Dow on Tuesday rallied over 500 points on an improving coronavirus outlook and countries participating in an historic crude production cutback are convinced they have averted disaster, crude traders continued to exhibit their pessimism about the energy market by causing prices to drop over 10 percent.
West Texas Intermediate on Tuesday fell 10.26 percent to settle at $20.11 per barrel, while Brent fell $2.14, or 6.7 percent, to $29.60 per barrel.
Nitesh Shah, director of research at WisdomTree Investments, said of the agreement by global producers to cut overall output by roughly 19.5 million barrels per day (bpd), "With demand destruction forecasts ranging from 15 million to 22 million bpd in April 2020 and these measures not even coming into place until May, we are likely to see a substantial overhang in the short-term."
Nitesh Shah, WisdomTree Investments
We are likely to see a substantial overhang in the short-term
Meanwhile, the U.S. Department of Energy said on Tuesday that it is negotiating with nine energy companies to store about 23 million barrels of domestically produced oil in the country's emergency crude reserve, as a way to help companies suffering from the oil price plunge.
In a similar strategy, India said it will fill its strategic petroleum reserve by the third week of May to help refineries reduce their excess product.
While analysts warned that inventories would continue to fill for some time, the coronavirus peaking in some parts of the world have led to emerging demand recovery signs.
This is most evident in China, where the virus outbreak started and is now largely under control: data shows that crude oil imports actually rose 12 percent in March from a year earlier.
Other coronavirus related news on Tuesday that could impact trading in the near term included widespread condemnation of the World Health Organization, the body that encouraged the global lockdown after nitially downplaying the seriousness of the virus: Australia blasted the organization for supporting the reopening of wet markets in China, despite them believed to be the source of the current virus and the 2003 SARS outbreak.
Elsewhere, the number of new coronavirus cases in Italy fell Tuesday to its lowest level in a month, two days after that country posted its lowest daily total of deaths in three weeks.
Also, one of the earliest regions to initiate lockdown in North America, California, is planning to loosen its stay-at-home orders soon: governor Gavin Newsom credited the lockdown for bending the curve of virus infections and said, "The models have changed because of your behaviour; this will not be a permanent state."