Oil prices roseÂ on Tuesday on hopes that the United States will soonÂ reach a deal on a $2 trillion coronavirus aid package that couldÂ blunt the economic impact of the outbreak and in turn supportÂ oil demand.
“Oil is clawing its way higher, mainly on the back of theÂ weaker dollar that stemmed from the Fed’s unprecedentedÂ measures,” said Edward Moya, senior market analyst at brokerÂ OANDA.
“WTI crude volatility will remain high and traders shouldÂ not be surprised if this rally eventually gets faded.”
The U.S. Federal Reserve on Monday rolled out anÂ extraordinary array of programs to backstop an economy reelingÂ from restrictions on commerce that scientists say are needed toÂ slow the coronavirus pandemic.
While a $2 trillion coronavirus economic stimulus packageÂ remained stalled in the U.S. Senate on Monday as lawmakersÂ haggled over its provisions, U.S. Treasury Secretary StevenÂ Mnuchin voiced confidence that a deal would be reachedÂ soon.
The expected stimulus pushed the U.S. dollar lower as itÂ will increase the cash supply. The dollar index, whichÂ measures the greenback against six major currencies, fell 0.5%Â on Tuesday.
A weaker greenback boosts dollar-denominated oil pricesÂ since buyers paying in other currencies will pay less for theirÂ crude.
Still, the overall crude demand outlook remains low as longÂ as travel restrictions are in place and governments curtailÂ commercial activities to prevent the coronavirus spread.
Prices and profit margins for motor and aviation fuelsÂ globally are under severe pressure from a plunge in demand asÂ countries enforce lockdowns and airlines ground planes, forcingÂ more refineries to reduce output and lower their crude oilÂ demand.
Concerns over oil demand were also stoked by a doubling ofÂ new coronavirus cases in China, the world’s biggest oilÂ importer, caused by a jump in infected travelers returning homeÂ from overseas. That is raising the risk of transmissions inÂ Chinese cities and provinces that had seen no new infections inÂ recent days.
“The anticipated lengthy absence of air traffic presents aÂ significant obstacle in its own right,” said Stephen Innes,Â chief global markets strategist at AxiCorp, adding that anÂ expected ramp up in supply could lead to plummeting prices onceÂ oil storage has filled.