By Jessica Resnick-Ault
NEW YORK (Reuters) – The global oil benchmark ended Tuesday slightly lower under pressure from falling equities, but the losses were contained slightly as top producers considered more output cuts to support prices and the Federal Reserve cut U.S. interest rates to support the economy.
Oil fared better than other risk assets classes, with U.S. crude gaining slightly in the session, even as equity markets fell more than 3%.
Crude has tumbled so far this year due to fears that coronavirus could sap global demand. Brent has fallen 21% and U.S. crude has fallen nearly 23%.
Fed efforts to stimulate the U.S. economy and OPEC’s planned rate cuts staunched some of the losses on Tuesday, as heavy volumes were traded. On Tuesday 399,600 contracts for the Brent front-month <LCOc1> and 971,000 for WTI <CLc1> changed hands. That compares with 417,555 for Brent and 949,741 for WTI on Monday.
Brent crude settled down 4 cents at $51.86 a barrel, after a volatile session. U.S. crude settled up 43 cents a barrel at $47.18.
Prices rose sharply after the Fed rate cut, with Brent hitting a session high of $53.90 a barrel, and U.S. crude touching $48.66 a barrel. But prices retreated and turned negative as investors worried about severe global demand destruction from coronavirus.
The U.S. rate cut briefly supported oil prices, but the Fed’s action also suggested that the situation was more serious than many traders had thought, said Bob Yawger, director of energy futures at Mizuho in New York.
Crude prices took a knock when a panel of OPEC and its allies, the Joint Technical Committee (JTC), recommended extending existing cuts to the end of 2020 and a further cut of 600,000 bpd in the second quarter, the same level it recommended last month.
“You need at least 1 million barrels in additional production cuts, and additional central bank intervention to support the global economy,” said Yawger.
The Organization of the Petroleum Exporting Countries and allied producers including Russia will consider substantial oil production cuts to lift prices that have tumbled with the coronavirus outbreak, Algeria’s oil minister said on Tuesday, as ministers began arriving for talks in Vienna.
Several members of the Organization of the Petroleum Exporting Countries (OPEC) are mulling a bigger output cut of possibly 1 million barrels per day (bpd).
Brent and WTI have rebounded over the past two days after sliding more than 20% from their January peak on signs the spread of the coronavirus had dented fuel demand.
After the Fed made its first emergency rate cut since the financial crisis, Fed Chair Jerome Powell said the coronavirus posed a material risk to the economic outlook.
Leonid Fedun, vice-president of Russia’s second-biggest oil producer Lukoil <LKOH.MM>, said OPEC’s proposed additional cut would be enough to lift crude prices back to $60 a barrel, which suggested Russia may agree to cut output further.
The coronavirus, which originated in China, has spread to more than 60 countries and has killed more than 3,000 people globally. In the United States, about 100 people have tested positive.
Other major central banks have promised monetary and fiscal stimulus. Also, G7 finance ministers will discuss how to cushion the economic impact of the outbreak, French Finance Minister Bruno Le Maire said on Monday.
Oil stockpiles in the United States, the world’s biggest crude producer and consumer, are expected to rise for a sixth week by 3.3 million barrels, while refined product inventories are forecast to fall, according to Reuters poll.
(Additional reporting by Noah Browning in London and Devika Krishna Kumar in New York; Editing by Susan Fenton and David Gregorio)