Oil rally loses steam as ECB move fails to calm markets

SINGAPORE — Oil prices pulled back from a massive early rally on Thursday as a plan by the European Central Bank (ECB) to buy huge amounts of bonds failed to calm  markets.

US benchmark West Texas Intermediate had surged more than 17 per cent at the open in Asian trade, recouping enormous losses Wednesday when prices hit 18-year lows.

But it lost a large chunk of those gains in the afternoon, and was trading up almost 12 percent at $22 a barrel.

International benchmark Brent crude initially jumped 8.5 per cent but lost ground later, and was up 4.6 per cent at $26 a barrel in late Asian business.

Asian stocks also made strong early gains on the ECB move but later slipped into negative territory as optimism about the plan was eclipsed by concerns the global economy is headed for a long, deep recession.

Oil markets have been hammered by collapsing demand as the virus prompts sweeping travel restrictions and business closures, and as major producers Saudi Arabia and Russia engage in a price war.

Thursday's early bounce followed the ECB's surprise announcement of a 750-billion-euro ($820 billion) scheme to purchase government and corporate bonds.

The so-called Pandemic Emergency Purchase Programme comes just six days after the ECB unveiled a stimulus package that also failed to calm nervous markets, piling pressure on the bank to open the financial floodgates.

But analysts predict oil prices have further to fall.

"With a global recession upon us with an indeterminate end, and a price war in full cry by oil producers, the world should probably be preparing itself (for) sub-$20 oil sooner rather than later," said Jeffrey Halley, senior market analyst at OANDA.