Hope for action from OPEC, central banks halts oil’s freefall

SINGAPORE (Bloomberg) --Oil rebounded from its worst week since 2008 as the world’s central banks sought to stabilize financial markets, while hopes grew that OPEC+ will deepen output cuts following the coronavirus outbreak.

Futures rose as much as 4.4% in New York, after sinking 16% last week. Russia, which is due to meet other OPEC+ members in Vienna this week, is ready to cooperate even though it’s comfortable with current prices, President Vladimir Putin said Sunday. That came after a Chinese manufacturing gauge hit a record low and central bankers across the world pledged action to protect markets.

The hope of stimulus spurred a broader recovery from last week’s carnage, with Asian and European stocks rising and commodities from copper to soybeans posting gains. Still, sharp swings in oil in Asian trading hours showed the extent to which the virus is roiling markets, with crude volatility settling at a 14-month high on Friday.

Oil use may not grow at all this year for only the fourth time in almost four decades, according to a growing minority of traders, investors and analysts. While economic stimulus in China and elsewhere may boost consumption in the second half, it’s unlikely to completely make up for the current hit to demand. Against this backdrop, OPEC+ meets on Thursday and Friday to decide on policy.

“The surge in oil prices today is driven by hopes that the OPEC alliance will deepen output cuts,” Michael Poulsen, an analyst at Global Risk Management, wrote in a report. “Hopes in the financial markets are now that the world’s central banks could spur some relief in the economies with economic stimulus.”

West Texas Intermediate futures for April delivery rose 1.6% to $45.47 a barrel on the New York Mercantile Exchange as of 10:30 a.m. London time. Brent futures for May delivery climbed 1.8% to $50.56 a barrel on the ICE Futures Europe exchange, after losing as much as 2.6% earlier.

Another Chinese purchasing managers’ index fell to 40.3 in February from 51.1 in January, according to figures released Monday. That came after the manufacturing PMI reading over the weekend of 35.7, which missed analyst expectations for 45. Worldwide deaths from the coronavirus have now surpassed 3,000, with South Korea, Iran and Italy emerging as hotspots.

OPEC+ Meets. Putin said the OPEC+ mechanism “has already established itself as an effective tool in ensuring long-term stability in global energy markets.” Still, Russia’s oil exports to Asia were almost unscathed in February amid the virus outbreak, potentially limiting the nation’s motivation to back deeper production cuts.

Nevertheless, “Russia isn’t as price-agnostic as it endeavors to seem,” Helima Croft, head of global commodity strategy at RBC Capital Markets, said in a note. Since current prices do not work for most of the OPEC+ group, “Saudi Arabia will likely be able to rally the rest of the producers for a cut of at least 1 million barrels a day.”