Beaten-down US oil prices rallied Wednesday following dramatic declines earlier this week, lifting global equities, even as American crude inventories surged closer to capacity levels.
Futures for the benchmark West Texas Intermediate for June delivery jumped 19 percent to $13.78 a barrel in New York. WTI sank into negative territory on Monday for the first time, but that was for the May contract that expired Tuesday.
Wednesday’s surge came after US President Donald Trump threatened to shoot at Iranian boats in a key waterway for crude shipments after Washington accused its arch-foe of harassing its ships in the Gulf.
But oil market watchers were also fixated on a weekly US inventory report that showed another big gain in crude stockpiles, including at the Cushing, Oklahoma hub where analysts say there is little remain space for more oil.
“Prices will need to continue to be at very low levels to incentive shuttering of capacity to prevent overfills throughout the system,” said Bart Melek, an analyst at TD Securities. “I would not be surprised to see single digit futures prices on the prompts or even negative again.”
The petroleum industry has emerged as one of the most vulnerable cornerstones of the global economy as shutdowns to limit the spread of coronavirus have a devastating impact on demand for oil.
The commodity has been further weakened by a battle for market share that raged much of the spring between Saudi Arabia and Russia.
Some analysts think a historic agreement last week by those two producers and other leading exporters could improve the supply-demand balance in the latter half of 2020.
– US-Iran tensions flare –
Trump, meanwhile, took to Twitter on Wednesday to say he had “instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea”.
The order came one week after 11 small armed Iranian Revolutionary Guards Corps speedboats swarmed around six US Navy and Coast Guard ships in international waters in the northern Gulf.
Iran’s military spokesman on Wednesday said US President Donald Trump should concentrate on “saving” his own country from the “major crisis” caused by coronavirus, instead of making threats.
“Today, instead of intimidating others, the Americans would do better to save their troops infected by the coronavirus,” said Brigadier General Abolfazl Shekarchi, spokesman for Iran’s armed forces.
The Gulf is a major gateway for oil to reach international markets, and previous spikes in tensions between US and Iranian vessels have seen crude prices similarly surge higher.
The oil rally helped boost equities in Europe and the US, where major indices were up more than two percent.
“The monster rebound in the oil market has boosted sentiment in stocks, and in turn the major equity benchmarks are set to finish the day deep into positive territory,” said market analyst David Madden at CMC Markets UK.
The reason, he said, is that “energy acts as a proxy for global demand,” and the huge drops in oil prices seen earlier in the week were an indication of a very severe recession.
– Key figures around 1915 GMT –
- West Texas Intermediate: UP 19 percent at $13.87 per barrel
- Brent North Sea crude: UP 5.4 percent at $20.37 per barrel
- London – FTSE 100: UP 2.3 percent at 5,770.63 (close)
- Frankfurt – DAX 30: UP 1.6 percent at 10,415.03 (close)
- Paris – CAC 40: UP 1.2 percent at 4,411.80 (close)
- EURO STOXX 50: UP 1.6 percent at 2,834.90 (close)
- New York – Dow: UP 2.3 percent at 23,548.01
- Tokyo – Nikkei 225: DOWN 0.7 percent at 19,137.95 (close)
- Hong Kong – Hang Seng: UP 0.4 percent at 23,893.36 (close)
- Shanghai – Composite: UP 0.6 percent at 2,843.98 (close)
- Euro/dollar: DOWN at $1.0815 from $1.0859 at 2030 GMT
- Dollar/yen: DOWN at 107.71 from 107.77 yen
- Pound/dollar: UP at $1.2311 from $1.2301
- Euro/pound: DOWN at 87.85 pence from 88.27 pence