Oil futures headed higher Tuesday morning as investors bet that OPEC and its members will agree to deeper production cuts to stem a coronavirus-inspired tumble in the commodity that entered a bear market a day ago.
The Wall Street Journal and others have reported that the Organization of the Petroleum Exporting Countries and its allies including Russia, known as OPEC+, were considering cutting crude output by a further 500,000 barrels a day.
The Journal reported on Monday that Saudi Arabia, considered the most influential member of OPEC by dint of its production capacity, is urging the oil cartel and its allies for a major, short-term production cut in crude.
West Texas Intermediate crude for March delivery CLH20, +2.61% was up 85 cents, or 1.7%, at $50.96 a barrel on the New York Mercantile Exchange, a day after it entered a bear market, down 20.8% from its recent high of $63.27 on Jan. 6, according to Dow Jones Market Data.
A decline of at least 20% from a recent peak is the traditional definition of a bear market.
April Brent crude BRNJ20, +1.76% picked up 46 cents, or 0.8%, at $54.91 a barrel on ICE Futures Europe, after its lowest settlement since Dec. 31, 2018, which also represented the international benchmark’s entry into a bear market, down 21% from its recent high of $69.02 from Sept. 16.
As of midnight Monday, China had 20,438 diagnosed cases, with 425 deaths, according to China’s National Health Commission.
Market participants are worried that the spread of the virus could have a substantial economic impact on the second-largest economy and the biggest importer of crude oil. Worries about weakened oil demand from China also comes as investors are fretting that global output of crude remains too robust to justify higher prices.
Some strategists are doubtful that Tuesday’s gains for crude represent a longer-term rebound, noting that expected gains in the Dow Jones Industrial Average DJIA, +0.51% and the S&P 500 index SPX, +0.73% were momentarily lifting assets considered risky like oil.
“The recovery of stock markets is lifting up the oil price as investors are — at least for now — less scared by the coronavirus,” wrote Carlo Alberto De Casa, chief analyst at ActivTrades, in a Tuesday research note. Despite this, the short-term trend remains bearish and there will only be an inversion if the price can return above the area of $53.50-$54,” he wrote.
Looking ahead, investors await inventory weekly data from the American Petroleum Institute later Tuesday, which could help influence crude trading ahead of the more closely watched Energy Information Administration data on Wednesday. API data are due at 4:30 p.m. Eastern on Tuesday.
Crude inventories are expected to rise by 3 million barrels to 434.7 million barrels, for the week ended Jan. 31, with gasoline stocks expected up 1.9 million barrels to fresh all-time high at 263.2 million barrels, while distillate stocks likely edged 100,000 barrels lower to 144.6 million barrels, according to analysts polled by S&P Global Platts.