Oil rockets higher, boosting global equities
NEW YORK, USA – Beaten-down United States oil prices rallied on Wednesday, April 22, 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 (WTI) for June delivery jumped 19% to $13.78 a barrel in New York. WTI sank into negative territory on Monday, April 20, for the first time, but that was for the May contract that expired on Tuesday, April 21.
The price surge on Wednesday 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 also were fixated on a weekly US inventory report that showed another big jump in crude stockpiles, including at the hub in Cushing, Oklahoma, 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 commodity has been further weakened by a battle for market share that raged much of the spring between Saudi Arabia and Russia. (READ: Oil crash means more misery ahead for U.S. shale producers)
Some analysts think a historic agreement last week between the 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 6 US Navy and Coast Guard ships in international waters in the northern Gulf.
Iran's military spokesman said Trump should concentrate on "saving" his own country from the "major crisis" caused by the coronavirus, instead of making threats.
"Today, instead of intimidating others, the Americans would do better to save their troops infected by the coronavirus," Brigadier General Abolfazl Shekarchi, spokesman for Iran's armed forces, said on Wednesday.
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. But geopolitical tensions won't have a lasting impact if crude storage facilities are full.
The oil rally helped boost equities in Europe and the US, where major indices finished up 2% or more.
"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.
Still, analysts described broad investor unease due to uncertainty on when the US economy will reopen following coronavirus lockdowns and on how quickly activity will return.
"We all can assume that by the end of June, the country will be pretty much open again, but we don't know," said Maris Ogg of Tower Bridge Advisors.
"The clear problem is confidence," she said. "Everything has to do with people being fearful of congregating." – Rappler.com