Crude oil futures maintain overnight gains as stimulus hopes keep market afloat

Singapore — 0321 GMT: Crude oil futures ticked up during mid-morning trade in Asia Oct. 6, extending overnight gains, as optimism over a new US stimulus bill abounded and reports of supply disruptions in Norway hit the market.

At 11.21 am Singapore time (0321 GMT), ICE Brent December crude futures were up 16 cents/b (0.39%) from the Oct. 5 settle to $41.45/b, while the NYMEX November light sweet crude contract was up 12 cents/b (0.31%) at $39.34/b. Both international crude markets surged 5.14% and 5.86% to settle at $41.29/b and $39.22/b respectively on Oct. 5, clawing back deep losses from the Oct. 2 trading session.

Market analysts attributed the bullishness in the market to hopes that the US congress will ratify a new stimulus package, which will invigorate the stagnant US economic recovery and boost the demand outlook for oil. These hopes arose after the House of Representatives' speaker Nancy Pelosi said in an MSNBC interview on Oct. 2 that US president Donald Trump's positive coronavirus diagnosis could encourage the Republicans to extend further support to a stimulus bill, and Trump himself expressed support for the bill in an Oct. 4 tweet.

OANDA's senior market analyst Edward Moya, however, cautioned in an Oct. 6 note that "these gains on stimulus prospects could easily go up in smoke" before calling attention to the supply side factors that may be fueling the rise in oil prices, in particular highlighting the curtailed oil production in Norway due to a strike by offshore workers.

S&P Global Platts reported on Oct. 5, that six Norwegian oil and gas fields have been shut following an escalation of a labor strike, affecting up to 330,000 b/d of oil equivalent production.

To this, Moya added: "Still at risk [of being shut down] is Equinor's Johan Sverdrup field, the largest in the North Sea, so the disruption in production could significantly grow."

Despite the rally, the outlook for oil remains bleak, as the resurgent coronavirus pandemic threatens to stall global economic recovery and depress oil demand.

Stephen Innes, chief global markets strategist at AXI, said in an Oct. 6 note: "I am still not bought into the oil rally, and I expect any fiscal bounce to [fade] in the absence of a vaccine -- the risk of [rising coronavirus cases] in the northern hemisphere, at some point, is bound to be a rally capper."

Meanwhile, Tropical Storm Delta, which the US National Hurricane Center predicts will become a hurricane late Oct. 6, has crept on to the market's radar after US Gulf Coast offshore oil and gas producers began the precautionary evacuation of non-essential personnel.

Among producers taking precautions are BHP and BP, with Occidental Petroleum also tracking the storm, Platts reported Oct. 6.