Oil rockets 20pc on hopes for end to price war
A Donald Trump tweet helped power crude to a record one-day gain, as hopes rose for a truce in the global oil price war.
Hopes for a truce in the global oil-price war powered crude to its biggest one-day percentage gain on record, with investors betting a globally co-ordinated production cut would alleviate some of the pressure from the coronavirus crisis.
The gains capped a wild day of trading, in which an early climb accelerated after President Donald Trump tweeted that he expected Russia and Saudi Arabia to agree to cut production by millions of barrels.
Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!
— Donald J. Trump (@realDonaldTrump) April 2, 2020
Prices for Brent, the global benchmark, then soared as much as 47 per cent before slowing after the Kremlin denied talking to the Saudis. The climb then stabilised after Saudi officials said the kingdom would consider substantial output cuts as long as others in the G-20 group of nations were willing to join the effort.
While investors still expect the coronavirus crisis to deliver a major blow to global oil demand, the news offered a glimmer of hope that major producers can avoid a protracted conflict, lifting shares of beleaguered energy companies. Energy shares have been the best-performing group in the S&P 500 so far this week, with shares of Exxon Mobil Corp. gaining 7.3 per cent and shares of Chevron Corp. gaining 7.8 per cent.
“This is a positive surprise for the market, but we’re still a long way off from seeing actual material cuts,” said Gary Ross, chief executive of Black Gold Investors. “Demand is still being devastated.”
US crude oil closed up 25 per cent at $US25.32 a barrel, logging its sharpest percentage gain on record, according to a Dow Jones Market Data analysis of figures going back to 1983. Brent rose 21 per cent to $US29.94, also recording its best day on record, according to data going back to 1988.
The gains marked a rare bright spot for oil prices in recent weeks. Both Brent and US crude are still down more than 50 per cent so far this year, leaving many traders sceptical that production cuts alone can lift prices back near recent highs.
Capping traders’ enthusiasm: oil storage is rapidly filling up while demand for fuel has plummeted, with swathes of the globe shutting down all but essential services in an effort to combat the spread of the coronavirus. Factories have closed and restaurants have shuttered. Airlines are scaling back on flights and people aren’t driving. Many expect a deep recession worldwide. Investment banks and commodities trading houses have slashed their forecasts for daily global oil demand by tens of millions of barrels.
A truce between the Russians and Saudis would do little to shift those dynamics, many analysts said, and might even cause greater problems.
“It’s physically impossible for Saudi Arabia and Russia to get 10 million barrels a day off the market -- they’d burst their onshore storage and fill every ship in sight,” said Edward Marshall, a commodities trader at Global Risk Management. “Even with OPEC on board, that’s a phenomenal amount of oil, and it’ll be very difficult to get everyone on side.”
The slide has hit energy companies hard, pushing many to the brink and dashing others’ plans to restructure their operations. Shares of Exxon and ConocoPhillips have both shed more than 40 per cent of their value so far in 2020. Earlier this week, US shale driller Whiting Petroleum Corp. filed for bankruptcy protection, becoming the first sizeable fracking company to succumb to the crash in oil prices.
Mr Trump is set to meet Friday with the heads of some of the largest US oil companies to discuss measures to help the industry as it fights for survival. The chief executives of Exxon, Chevron Corp. and Continental Resources Inc. are expected to attend.
Investors were hopeful that President Trump’s tweets signalled a thaw in the price war, which began in early March, after the Saudi-led Organization of the Petroleum Exporting Countries and a group of other oil-producing countries dominated by Russia failed to deepen production cuts by 1.5 million barrels. But some analysts doubt that co-ordinated cuts of the size he described Thursday are even possible.
“It’s highly unlikely these parties would agree to these cuts,” said Spencer Welch, director of oil markets at IHS Markit. “It’s not just [requiring] the Russians coming back and offering significantly more cuts than at the last OPEC+ meeting, but you’ve also got hundreds more producers across the U.S. needing to pass the legislation to enforce those cuts.”
The two periods of the sharpest oil inventory builds in recent years were in early 2005 and early 2015, when stocks rose by around 400 million barrels, according to IHS Markit data. But currently IHS expects global oil inventories to rise by three times that amount in the first half of this year.
Dow Jones Newswires