'Nobody's driving': Energy prices plunge as demand dries up amid lockdowns
Oil had its biggest-ever one-day gain in New York as Middle East producers began to show signs of strain and as the U.S. president said he would get involved in the oil price standoff at the “appropriate time.”
Futures rose 24 per cent on Thursday, the most since trading began in 1983. Prices are still down almost 60 per cent this year, with the slide accelerating following a failed OPEC+ meeting in early March, after which major producers pledged to pump more in a battle for market share just as the coronavirus crisis crushes demand.
President Trump said he was searching for “medium ground” in the oil price war. “It’s very devastating to Russia, because the whole economy is based on that, and they have the lowest prices in decades,” Trump said. “I would say it’s very bad for Saudi Arabia. But they’re in a fight, they’re in a fight on price, they’re in a fight on output. At the appropriate time I’ll get involved.”
“Trump getting involved was bound to happen with the existential threat to the oil industry,” said Walter Zimmermann, chief technical strategist at ICAP Technical Analysis. “This rebound may not have a future though unless Saudi and Russia stop digging their heels in.”
Earlier, the U.S. said it would kick off its commitment to fill the Strategic Petroleum Reserve by buying 30 million barrels of American oil.
Signs of stress are also being revealed in other parts of the world, with Canadian oil at a record low and some North Sea fields becoming uneconomic.
Meanwhile, policy makers across the globe are trying to strengthen economies against the impact of the coronavirus pandemic. The European Central Bank has unleashed an emergency bond-buying program, while the U.S. Senate cleared the second major bill responding to the outbreak in an attempt to kickstart the economy. White House economic adviser Larry Kudlow said the government might take equity positions as part of corporate rescues.
Countries are ramping up measures as the global spread of the virus continues to gather pace with the number of confirmed cases in Europe now exceeding China. Italy’s death count has surged to almost 3,000, while the U.K. imposed tighter controls on movement of people including closing all schools.
“We are heading into the most oversupplied market in the history of the oil market,” said DNB Bank ASA senior analyst Helge Andre Martinsen. “We might hit full utilization of global oil inventories in the months to come.”
The Saudis ordered state-run Aramco to keep output at a record high of 12.3 million barrels a day over the coming months. But in a surprise move Thursday, both the kingdom and Iraq cut the rebates on freight costs they give to customers, effectively lifting prices.
The higher supply is increasingly taking its toll on the oil market’s structure. Brent’s six-month timespread is currently at its most bearish since 2009, indicating a big glut. As a result, traders are eyeing lucrative opportunities from storing oil on tankers and hoping to sell it at a profit later.
With crude’s price weakness getting more entrenched, traders are increasingly trying to assess the impact on U.S. production this year. On Thursday, a barrel of Permian oil was cheaper than a meal at a steakhouse in the region’s Midland heartland, a sign that producers are struggling to cover their operating costs.
- West Texas Intermediate for April delivery, which expires Friday, climbed US$4.85 to settle at US$25.22 a barrel on the New York Mercantile Exchange
- Global benchmark Brent crude added US$3.96 to US$28.84 at 3:47 p.m. on London’s ICE Futures Europe exchange