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.
“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.
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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