Oil prices gain amid US stimulus hopes

Kumutha Ramanathan
·Contributor
·2-min read
A pump jack is seen at sunrise near Bakersfield, California October 14, 2014. Brent crude hit a new four-year low on Wednesday before recovering to just under $85 a barrel, as faltering global growth curbed demand for fuel at a time of heavy oversupply. Oil saw its biggest daily fall in more than three years on Tuesday after the West's energy watchdog slashed its forecasts for world oil demand for this year and 2015. Picture taken October 14, 2014. REUTERS/Lucy Nicholson (UNITED STATES - Tags: ENERGY BUSINESS TPX IMAGES OF THE DAY)
Oil received additional help from the start of evacuations from oil platforms in the Gulf of Mexico ahead of the expected arrival of Hurricane Delta, according to analysts. Photo: Lucy Nicholson/Reuters

Oil prices have been gaining following sweeping market optimism on the prospects for a US stimulus plan.

Brent crude jumped at least 0.1% on Tuesday to around $41 (£31.63) a barrel in early trading in London. The crude oil spot price also advanced by 0.1% in early trading to around $39 a barrel.

Brent crude jumped as market sentiment rebounded following news that the US president returned to the White House and renewed stimulus plans.
Brent crude jumped as market sentiment rebounded following news that the US president returned to the White House and renewed stimulus plans. Chart: Yahoo Finance UK

“Oil prices raced higher overnight, as a combination of tailwinds combined to lift prices off the bottom of their one-month ranges,” said Jeffrey Halley, senior market analyst at OANDA said in a note.

He added that oil received additional help from a widening strike by oil workers in Norway and the start of evacuations from oil platforms in the Gulf of Mexico ahead of the expected arrival of Hurricane Delta.

US president Donald Trump also left hospital on Monday night after experiencing COVID-19 symptoms, which also contributed to overall optimism.

Yet, the real news markets were focused firmly on US House speaker Nancy Pelosi and US Treasury secretary Steven Mnuchin speaking for an hour on Monday on the “justifications for various numbers” in potential stimulus deals and agreed to continue talks on Tuesday. This suggests that the two sides are working to bridge the ideological divide between the offers from the White House and the Democrats.

READ MORE: Markets open higher as US stimulus and election fears settle

The US president also tweeted over the weekend that a stimulus bill needs to get done.

Yet, one should not get “sucked into a false dawn” said Halley, suggesting that the rally might be short-lived.

“Extraneous factors are lifting oil prices with nothing structurally changed on the supply/demand equation for global markets,” he said.

The ramping up of COVID-19 restrictions could undermine demand in major economies, Hurricane Delta and president Trump’s health taking a turn for the worse are among the looming factors to consider.

“Being Long Brent near $44 a barrel, or WTI near $42 a barrel, is likely to be a painful trade,” he said. “That said, for nimble traders, they are possible; just don't fall in love with your position there.”

COVID-19 worries are a further concern as re-opening plans around the world remain unclear, including New York Governor Andrew Cuomo saying New York City schools in viral hot spots will close on Tuesday and Ireland considering a return to full lockdown.

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