By Barani Krishnan
Investing.com - Oil prices settled up nearly 5%, rebounding from last week’s crash, on hopes of deep production cuts by OPEC to offset crude demand lost to the coronavirus. Signs that major central banks and finance ministers were coordinating action to prevent a global economic collapse also helped the rally.
But news that at least six Americans have died from the viral outbreak that has already killed more than 3,000 people worldwide could send new shockwaves through U.S. markets. Wall Street’s S&P 500 index, which oil closely tracks, was still up 2.3% in Monday’s afternoon trade, though it was off the day’s highs when it rose as much as 3%.
“Rate cuts will not cure the economic impact of the coronavirus, only a vaccine will do that,” said Ed Moya, analyst at New York trading platform OANDA. “It seems we could see the ‘stay-at-home’ economy deliver a global growth shock that could last for quarters.”
West Texas Intermediate, the U.S. crude benchmark, settled up $1.99, or 4.5%, at $46.75 per barrel,. WTI fell 5% Friday and 16% through last week, its most in a week since mid-December 2008, the era that spawned the Great Recession.
Brent, the London-traded global benchmark for crude, settled up $2.23, also 4.5%, at $51.90. Brent lost 4.8% on Friday and 15% last week.
OPEC’s 13 members open their regular twice-yearly meeting on Thursday before a special session on Friday with 10 producing allies led by Russia, who are collectively known as OPEC+.
Saudi Arabia, which dominates the group, is trying to push for an agreement to cut another 1 million barrels per day on top of 2.1 million bpd already agreed in December. Russia, whose cooperation is vital for a cut, hasn’t given an emphatic yes to the Saudis.
“Action is up to Saudi Arabia, as Russia is unlikely to produce convincing support,” said Olivier Jakob of Zug, Switzerland-based oil risk consultancy Petromatrix.
As for rate cut expectations, fed funds futures are pricing in a 100% chance that the Federal Reserve will cut rates by 50 basis points at its meeting March 18, Investing.com’s Fed Rate Monitor Tool showed.
The Bank of Japan and Bank of England are both ready to act to stabilize markets, stoking investor hopes of a synchronized move. The Group of Seven finance ministers is scheduled to hold a teleconference Tuesday to coordinate response to the coronavirus outbreak.
“While the 10-Year(U.S. Treasury note) is at a record low, there is nothing preventing rates from declining further if the spread of the virus continues or the data is weak,” TD Securities said in a note.