Oil prices rally on hopes for USA stimulus

Oil prices rally on hopes for US stimulus

Crude oil prices were up at trade opening on Wednesday with optimism that the $2 trillion aid package to stimulate the American economy would increase crude demand in the world's largest oil consuming country.

USA crude was at $23.58 a barrel, down 81 cents, or 3.4%. The unexpected price war between Saudi Arabia and Russian Federation has unleashed a flood of supply while the pandemic is on track to cut fuel demand by at least 10% worldwide.

Wednesday's gains came after the Dow surged 11.4 per cent, its biggest one-day percentage increase since 1933, on indications Congress is nearing agreement on a rescue package for the U.S. economy that could amount to more than Dollars 2 trillion.

The market was substantially off and analysts remained pessimistic that oil prices would stage an extended recovery amid the worsening coronavirus pandemic and the ongoing oil price war between Saudi Arabia and Russian Federation.

Brent crude was trading up 49 cents, or 1.8 per cent, at $27.64 a barrel.

The Fed on Monday rolled out an array of programs including backing for corporate bond purchases for the first time.

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The U.S. Congress may vote on Wednesday on the $2 trillion stimulus after Republicans and Democrats said they were close to a deal, with optimism over the package fueling a surge in stock markets.

The price of oil has halved in 2020, hit by the demand shock caused by the pandemic and efforts to contain it, and removal of supply limits by the Organization of the Petroleum Exporting Countries and other producers, including Russian Federation, when a deal by the so-called OPEC+ fell apart in early March.

"Prices are likely to remain under pressure until the virus situation turns the corner, and if we continue on the projected market balances path, even Saudi Arabia and Russian Federation will not be immune from the price fallout, in our view, despite their low cash operating costs", Barclays said in its Commodities Research report.

The weekly report from the Energy Information Administration (EIA) is due at 10:30 a.m. on Wednesday.

Industry group the American Petroleum Institute (API) was scheduled to release its supply report on Tuesday at 4:30 EDT (2030 GMT), followed by the USA government's figures on Wednesday.

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