WTI, Brent crude futures post price gains Thursday Getty Images
U.S. oil prices surge by nearly 20% as traders point to escalating Middle East tensions
Oil futures on Thursday ended sharply higher, with the threat of conflict between the U.S. and Iran and signs of production cuts lifting U.S. benchmark prices by almost 20%.
The commodity was extending its advance from the previous session after President Donald Trump on Wednesday in a tweet “instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea.”
Oil has been under enormous pressure as a pact by the Organization of the Petroleum Exporting Countries and other major oil producers failed to stem a slump in the value of the commodity that was amplified by the COVID-19 pandemic that has crushed demand for oil.
On top of that, producers are running out of places to store oil, a fact that has also added to price pressures.
“The oil market was looking for something to hold onto after days of painful declines in prices and today found some relief in developments in the U.S.,” wrote Bjornar Tonhaugen, head of oil markets at Rystad Energy, in a daily research note.
“Threats by U.S. President Donald Trump to destroy Iranian gunboats if they harass U.S. navy ships boosted the possibility of renewed tension in the Middle East, a major oil producing region, which traders always translate to reductions in the region’s production and exports if things escalate,” he said.
June West Texas Intermediate crude US:CLM20, the U.S. benchmark grade, rose $2.72, or 19.7%, to settle at $16.50 a barrel on the New York Mercantile Exchange, after touching an intraday peak of $18.26, according to FactSet data. The contract surged more than 19% on Wednesday.
June Brent crude UK:BRNM20, the international benchmark, rose 96 cents, or 4.7%, to end at $21.33 a barrel, after jumping 5.4% in the pervious session.
Marshall Gittler, head of investment research at BDSwiss Group, downplayed the risk of disruption to oil shipping in the Middle East.
“Given the recent history of conflict between the two nations [the U.S. and Iran] — big on threats, short on fighting — I think it’s highly unlikely that we would see anything significant enough to interfere with shipping,” he said. “Short of that, I don’t see this having much impact on the supply of oil.”
Two straight days of gains for crude has brought some calm to the energy market but commodity traders are uncertain how long the upswing for oil will last without a more lasting solution to the commodity’s storage and oversupply problems.
On Wednesday, the U.S. Energy Information Administration reported that U.S. crude inventories rose 15 million barrels for the week ended April 17 to 518.6 million barrels, marking a 13th straight weekly climb. That followed a record weekly increase of 19.2 million barrels a week earlier.
Oil stocks at Cushing, Okla., the delivery hub for Nymex futures, rose to 59.7 million barrels last week from 55 million the previous week.
“The storm for oil isn’t over but at least for the time being it is less volatile than the headline-grabbing moves of the last few days,” wrote Carlo Alberto De Casa, chief analyst at ActivTrades, in a research note on Thursday.
“It is clear that any additional cut by OPEC would only be a temporary solution and not a definitive one. Moreover, many producers will struggle with further cuts, even if this seems to be the only alternative to ultra-low prices,” he wrote.
Still, Gittler said oil demand may have “bottomed for now.”
“The supply overhang is still there — people are just getting enthusiastic about the idea that the tanks will fill up a bit more slowly than they had thought on Tuesday,” he told MarketWatch.
Signs of a further drop in U.S. crude oil production may also support crude prices, from a slowdown in fracking activity and sharp weekly declines in the active oil-rig count, to expectations of a May decline for all seven major shale oil output regions.
Energy companies have announced production cuts, including Continental Resources Inc. US:CLR and Parsley Energy Inc. US:PE earlier this month. Offshore oil drillers have started to shut off wells in the U.S. Gulf of Mexico.
U.S. fracking activity, meanwhile, is poised to suffer its largest-ever monthly drop in April, according to a recent report from Rystad Energy.
Data from Baker Hughes meanwhile show a drop of 66 in the number of active U.S. rigs drilling for oil to 438 as of the week ended April 17. That marked a fifth straight weekly decline.
On Nymex, prices for petroleum product also climbed, with May gasoline US:RBK20 up 0.8% at 64.36 cents a gallon and May heating oil US:HOK20 up 0.5% at 73.45 cents a gallon.
May natural gas US:NGK20 fell by 12.4 cents, or 6.4%, to $1.815 per million British thermal units, near the session’s low of $1.806. Prices eased back in volatile trading to give up nearly all of the 6.5% climb suffered Wednesday.
The EIA reported Thursday that domestic supplies of natural gas rose by 43 billion cubic feet for the week ended April 17. Average expectations called for a rise of 49 billion cubic feet, according to a survey of analysts conducted by S&P Global Platts.
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