Oil Ends Up 3% on China Stimulus Talk; Analysts Warn of More Volatility

Investing.com – If it’s not the stock market that’s yanking oil around these days, then it’s China.

Crude futures rose more than 3% on Tuesday, recovering all of Monday’s losses, as China signaled more stimulus measures to offset some of the impact of its trade war with United States that has taken a heavy toll on its economy.

U.S. settled up $1.60, or 3.2%, at $52.11 per barrel. It fell 2% on Monday.

London-traded, the global oil benchmark, was up $1.39, or 2.4%, at $60.38 at around 2:30 p.m. ET (19:30 GMT).

Zug, Switzerland-based oil consultancy Petromatrix noted that while Monday’s session was all about fears over China’s trade balance deterioration, Tuesday’s trade with filled with “global optimism about China” after Beijing’s National Development and Reform Commission said it expects “a good start” to the first quarter.

Some analysts believe there could be as much as 2 trillion yuan ($296.21 billion) worth of cuts in federal taxes and fees under under the Chinese stimulus measures, and local governments could issue another 2 trillion yuan in special bonds to fund key projects.

Crude prices began 2019 with the same steady upswing since Christmas before getting tied again to equities, which was the driver for oil through most of the fourth quarter.

New York-based research outfit Energy Intelligence cautioned that instead of the predictable prices or slow, linear changes of the past, oil companies now faced the prospect of “ongoing gyrations in shorter, faster cycles — a reality that will force them to remain conservative in spending and treat each price recovery as a welcome, but likely temporary, relief.”

In its Short-Term Energy Outlook released on Tuesday, the U.S. Energy Information Administration forecast Brent will average $61 per barrel in 2019 and $65 in 2020, versus the 2018 average of $71.

The EIA expected WTI to average $8 per barrel below Brent in the first quarter, and for the discount to narrow to $4 by the fourth quarter through 2020.

Separately, the EIA is also expected to announce on Wednesday a sixth straight weekly decline in U.S. crude inventories for the week ended Jan. 11. Analysts forecast a drop of 1.5 million barrels versus 1.7 million the previous week.

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