Relief for Crude Prices On Monday, But Experts Dismiss It As Temporary

However, further U.S. government stimulus could support prices: File Image/PixaBay

What many are calling a stopgap but is nonetheless a relief to the market, oil on Monday gained 3 percent after a week of sharp declines, on the strength of the U.S. Federal Reserve announcing it will continue to purchase Treasury securities and agency mortgage-backed securities to support the economy.

West Texas Intermediate gained 3.23 percent to settle at $23.36 per barrel, while Brent traded 0.6 percent higher at $27.18 per barrel.

Also viewed as something that could boost oil prices is a massive stimulus funding package from Washington: it failed for a second time on Monday to pass the Senate, but negotiations continue.

However, in light of the continued global spread (except in its country of origin and a few neighbouring nations) of the coronavirus and the ongoing price war between Saudi Arabia and Russia, Ed Morse, global head of commodity research at Citi, warned that a rocky road is still ahead.

He said, “We don’t think the one-two punch is over, particularly on the demand side where the impact on transportation fuels in Europe and the U.S. is just beginning.”

Morse believes crude will trade at below $20 for most of the second quarter.

John Kemp, commodities analyst for Reuters, noted some signs of hope for crude prices via hedge fund short covering: on Monday he stated, "From a positioning perspective the balance of risks has shifted to the upside, with prices having fallen so far already and many hedge fund managers still running short."

However, he reiterated the message of many colleagues by adding, "Until the global economic crisis is brought under control, and some normalization of business and transportation activity starts to take place, oil prices will continue to slump."

Amid the devastation are numerous ideas on how to get back on track, and some U.S. energy officials are reportedly in favour of setting up an alliance with Saudi Arabia to stabilize prices.

Dan Brouillette, energy secretary for the U.S., said, “There are many, many ideas that are floated around the policy space, that is one of them, [but] I don’t know that it is going to be presented in any formal way.”