Oil's rebound from its biggest crash in a generation faltered after Saudi Arabia said it would boost its production capacity, while there were also doubts whether the US could deliver sufficient stimulus to support prices.
Brent crude fell 1 percent in London after being up almost 7 percent earlier.
Saudi Aramco said yesterday that it was making maximum efforts to boost its oil production capacity to 13 million barrels a day from 12 million after pledging to supply a record 12.3 million barrels a day next month in a massive increase.
In the US, President Donald Trump pitched a payroll tax holiday and relief for the travel and hospitality sectors to combat the virus’s impact, while some Republican senators suggested a bailout for the shale industry.
The Trump administration’s willingness to revive the economy comes after the disintegration of Opec+ and the subsequent plunge in oil prices threatened the US shale industry and spurred an indiscriminate sell-off in markets reeling from the coronavirus.
However, investors’ hopes were tempered when the president didn't appear at a White House briefing on Tuesday after promising a day earlier he would hold a news conference to announce major stimulus.
“The market rally based on Trump’s economic stimulus alone is unlikely to be sustainable, given the amount of crude that will soon be hitting the market," said Howie Lee, an economist at Oversea-Chinese Banking Corp. “Any meaningful rebound will either come from coronavirus fears fading away, or Saudi Arabia and Russia returning to the negotiating table.”
Brent crude for May settlement fell 1 percent to $36.84 a barrel on the London-based ICE Futures Europe exchange as of 7.23am in London after being up as much as 6.7 percent earlier. It jumped 8.3 percent on Tuesday following a 24 percent plunge the day before.
West Texas Intermediate crude for April delivery dropped 1.6 percent to $33.80 a barrel on the New York Mercantile Exchange after swinging between a gain of 5.8 percent and a loss of 2.4 percent. It rallied 10.4 percent in the previous session after collapsing by almost 25 percent on Monday.
Trump spoke with Mohammed bin Salman by phone before the Saudi crown prince escalated the oil-price war on Tuesday, according to two people familiar with the call.
Russia's top producer, Rosneft PJSC, is also planning to ramp-up output in April, a person close to the company said. Iraq and Nigeria followed in their wake, and said they would increase crude shipments next month.
Meanwhile, the American Petroleum Institute reported that US inventories increased by 6.41million barrels last week, according to people familiar with the data, highlighting the lack of demand. That would be the seventh straight weekly expansion if confirmed by Energy Information Administration figures due later yesterday.
Expectations for a “major” fiscal stimulus package by the US have underpinned sentiment, Stephen Innes, chief Asia market strategist at AxiCorp, said in a note. But there's still potential for this to fall through, he said.