Oil prices rose on Tuesday on hopes that the United States will reach a deal soon on a $2 trillion coronavirus aid package. It could blunt the economic impact of the outbreak and in turn support oil demand.
Brent crude oil LCOc1 futures for May delivery rose by 62 cents, or 2.3%, to $27.65 a barrel by 0346 GMT while West Texas Intermediate (WTI) crude CLc1 futures gained 76 cents, or 3.3%, to $24.12. Both price benchmarks had risen over $1 earlier before pulling back slightly.
“Oil is clawing its way higher mainly on the back of the weaker dollar that stemmed from the Fed’s unprecedented measures,” said Edward Moya, senior market analyst at broker OANDA.
“WTI crude volatility will remain high and traders should not be surprised if this rally eventually gets faded.”
The U.S. Federal Reserve on Monday rolled out an extraordinary array of programs to backstop an economy reeling from restrictions on commerce. Scientists say that it is vital to slow the coronavirus pandemic.
The expected stimulus pushed the U.S. dollar lower as it will increase the cash supply. The dollar index .DXY, which measures the greenback against six major currencies, fell 0.5% on Tuesday.
According to reuters.com, a weaker greenback boosts dollar-denominated oil prices since buyers paying in other currencies will pay less for their crude.
Still, the overall crude demand outlook remains low as long as travel restrictions are in place and governments curtail commercial activities to prevent the coronavirus spread.
Prices and profit margins for motor and aviation fuels globally are under severe pressure from a plunge in demand. This caused by the countries that enforce lockdowns and airlines ground planes. It forces more refineries to reduce output and lower their crude oil demand.