The Daily Dose

Crude oil prices were in recovery mode in early Tuesday trading, with Brent getting a good bounce off a support level of around $53 per barrel. Commodities were riding the wave created by a surge in equities, though the recovery for oil may be more technical in nature. Competing signals in supply and demand have created a cloud of uncertainty over the market and, with OPEC+ decisions still in limbo, the climate may be one of temporary gains.

Brent crude as of 8 a.m. EST was trading at $54.23 per barrel, up some 1.8% from the previous close. Commodities may be following equities, with major US stock indices showing gains in pre-market trading. Nasdaq futures were showing a 1.2% surge early Tuesday.

Positive signals may be emerging as concerns about the impact of the coronavirus outside China ease. European officials said they did not expect any major economic impact from the outbreak. In India, Asia’s third-largest economy, finance officials painted a rosy picture, forecasting easing inflationary pressures and growing electricity demand.

Tailwinds may also be blowing from South America, with striking oil workers in Brazil straining an energy sector reaping the rewards from the International Maritime Organization’s sulfur cap on marine fuels. Refiners in the low-sulfur world are turning toward heavy-sweet grades such as Brazil’s Ostra that have higher yields of the fuels necessary to comply with the new limits.

Headwinds, meanwhile, are blowing from the United States. The early read is that the EIA will report another build in crude oil inventories for the week ending February 7. A federal budget outlined by US President Trump, meanwhile, calls for more sales from strategic reserves, potentially adding to the glut.

Demand concerns are still emanating from China, the second-largest economy in the world. IHS Markit said China may have to cut imports by as much as 1.1 million barrels per day over the next four months to keep supply and demand in check. Bjornar Tonhaugen, the head of oil markets for Rystad Energy, said demand constraints will persist at least through March.

Market players are still left guessing on OPEC+ policy. A joint committee advising the group recommended additional cuts of around a half million barrels, though Russia continues to balk. In the United States, Fed Chair Jerome Powell said policy makers would respond “accordingly” should the coronavirus crimp momentum.

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