Oil prices seesaw after Navarro walks back U.S.-China trade deal comment

CNBC

Reuters
KEY POINTS
  • Oil prices were volatile on Tuesday after markets were spooked by surprise comments from White House trade adviser Peter Navarro saying a hard-won U.S-China trade deal was “over”, though he later said his comments had been taken out of context.
  • Brent crude fell by 7 cents, or 0.1%, to $43.01 a barrel by 0253 GMT, after earlier skidding to a session low of $42.21. U.S. oil was down 14 cents, or 0.3%, at $40.59 a barrel, having dropped to a low of $39.76.
An offshore drilling platform stands in shallow waters at the Manifa offshore oilfield, operated by Saudi Aramco, in Manifa, Saudi Arabia.
An offshore drilling platform stands in shallow waters at the Manifa offshore oilfield, operated by Saudi Aramco, in Manifa, Saudi Arabia.
Simon Dawson | Bloomberg | Getty Images

Oil prices were volatile on Tuesday after markets were spooked by surprise comments from White House trade adviser Peter Navarro saying a hard-won U.S-China trade deal was “over”, though he later said his comments had been taken out of context.

Jangled nerves were also soothed to some degree after U.S. President Donald Trump later tweeted that the China trade deal was fully intact, adding he hoped China would continue to live up to the terms of the agreement.

Brent crude fell by 7 cents, or 0.1%, to $43.01 a barrel by 0253 GMT, after earlier skidding to a session low of $42.21. U.S. oil was down 14 cents, or 0.3%, at $40.59 a barrel, having dropped to a low of $39.76.

U.S.-China relations have reached their lowest point in years since the coronavirus pandemic that began in China hit the United States hard. President Trump and his administration repeatedly have accused Beijing of not being transparent about the outbreak.

Prices had slid suddenly after Navarro told Fox News in an interview that the trade deal with China was “over”, linking the breakdown in part to Beijing not sounding the alarm earlier about the outbreak of the coronavirus pandemic.

He later issued a statement saying that he had been “speaking to the lack of trust” in the Chinese administration, the comments had been “taken wildly out of context” and the trade deal remains in place.

“These comments from Navarro came out of nowhere,” said Edward Moya, senior market analyst at brokerage OANDA. “Energy traders will likely remain sceptical of the relationship between the U.S. and China if the Chinese fail to quickly make up for the shortfall with their promises of agricultural goods (purchases).”

Prices had risen earlier in the session, with the reopening of some U.S. states and countries around the world after coronavirus lockdowns sustaining a rally as demand for fuel returns. In New York, streets were clogged with traffic as the worst affected city in the United States emerged from more than 100 days of lockdown.

Tensions in the Middle East also lent some support to oil prices.

The Saudi-led coalition in Yemen said early on Tuesday it intercepted three ballistic missiles launched by Yemen’s Houthis towards the Saudi Arabian cities of Najran and Jizan, according to the Saudi state TV.

On the supply side, meanwhile, U.S. and Canadian oil and gas drillers cut the number of the rigs they are operating to a record low. That leaves them with a steep slope to scale towards recovery in output even with higher prices to spur them on.

“U.S. onshore production has now given up two full years of (volume) gains,” said Stephen Innes, chief global markets strategist, at AxiCorp. “It supports the market supposition that even with a rebound in price, the capital investment that had already been tapering off in Q1 isn’t flowing back quickly.”

U.S. oil rigs contracted for drilling dropped by 10 to 189 last week, their lowest since June 2009, according to weekly data from energy services firm Baker Hughes Co.

Gas rigs fell by three to 75, the lowest on record according to data going back to 1987.

Rebound in oil is just a ‘breather’ and crude prices will likely turn negative again, analysts say

KEY POINTS
  • “I’m not even calling this a rebound. I think oil prices are taking a breather,” Vandana Hari, founder of Vanda Insights, told CNBC.
  • Overnight, the June contract for WTI surged 19% as U.S. President Donald Trump ordered Iranian boats to be shot down if they “harass” American ships.
  • In the near term, unless production is cut, very limited capacity to store oil is likely to continue pressuring prices, analysts say.

Oil prices recovered from earlier losses overnight, but it might not be a rebound and could simply be markets taking a “breather,” analysts said, warning that crude prices could turn negative again.

That’s because the underlying issues with weak demand and storage running out have not been resolved, and will continue to put pressure on energy prices.

U.S. oil prices as well as international benchmark Brent crude have see-sawed this week. The May contract for U.S. benchmark West Texas Intermediate dived deep into negative territory earlier this week, for the first time in its history, and traded at negative $37.63 per barrel. That meant producers had to pay traders to take the oil off their hands.

While the Brent tumbled overnight to its lowest since 1999, at $15.98, it did not enter into negative territory.

Overnight, however, the June contract for WTI surged 19% to settle at $13.78 per barrel. Analysts attributed that to tensions in the Persian Gulf as U.S. President Donald Trump threatened to “shoot down and destroy” Iranian gunboats if they “harass” American ships.

“I’m not even calling this a rebound. I think oil prices are taking a breather,” Vandana Hari, founder of Vanda Insights, which provides analysis on global energy markets. WTI last traded at $15.66 per barrel on Thursday afternoon, a far cry from levels around $60 at the beginning of this year.

“As it happened, it’s not really managed to prop prices up too much,” she told CNBC on Thursday, referring to the U.S.-Iran tensions. “I think the geopolitical tensions element … at this point to the markets is extremely small.”

News that President Trump had ordered the Navy to shoot down Iranian gunboats may have been the spark that started the rebound. But the backdrop is poor with weak demand and rising inventories.

Instead, Hari pointed to the key factor of global lockdowns as the current pandemic continued to take its toll, which would continue to weaken demand and hurt oil prices.

“The downward pressure on oil prices still remains immense. What has turned dramatically in terms of market sentiment, especially this week … is that the demand sentiment has turned much more negative because of the continuing lockdowns,” she said.

“Countries that have found a flattening of the curve … are being extremely cautious. A lot of countries are seeing some sort of a resurgence in infection rates. Essentially, what we have is a picture of a world that doesn’t know its way out of this pandemic and the associated lockdowns.”

20200422 Brent vs WTI
ANZ Research’s John Bromhead also said in a note on Thursday: “News that President Trump had ordered the Navy to shoot down Iranian gunboats may have been the spark that started the rebound. But the backdrop is poor with weak demand and rising inventories.”

Could crude prices turn negative again?

Oil demand has been badly hit as travel restrictions remain in place in many countries and people are told to stay home. Both air and vehicular travel have come to a virtual standstill, among other factors.

That plunging demand has caused oil supply to rapidly build up — and main storage facilities are quickly running out of capacity.

It has hit U.S. crude particularly hard, with the country’s main storage facility at Cushing, Oklahoma set to be full within weeks. Tanks in that facility, a major trading hub for crude oil, are likely to reach full tank capacity by mid-May, according to an estimate by American global investment management, BlackRock.

The lack of storage is one main factor pushing down the nearer-term May contract for WTI, which expired on Tuesday, to negative. The collapse of WTI into negative prices is unprecedented.

In the near term, unless production is cut, the limited capacity to store oil will likely put pressure on crude prices, analysts say. It could even bring the June contract for U.S. crude — which has last above $15 a barrel — into negative levels as well, according to them.

“There is a possibility that the circumstances seen early this week could repeat itself for the June WTI contract, given the oil storage issues plaguing the market that look to persist, at least in the short term,” Peter Kiernan, lead analyst for energy at The Economist Intelligence Unit, told CNBC in an email.

Unless global lockdown measures are eased, or a further production cuts are agreed upon, there is a very real possibility that we’ll see a free-fall in the price of Brent Oil futures, and a chance that it will trade at a negative price in the short term.

Brent oil may not be as badly affected by storage issues as it is transported by sea, said Kiernan. Brent is priced on an island in the North Sea roughly 500 meters from the water, where tanker storage is accessible. In contrast, WTI is landlocked and 500 miles from water, making it tougher for global markets to take delivery.

Nemo Qin, senior analyst at investment platform eToro, said that other factors, such as an oversupply of oil without further production cuts, could still pressure Brent prices.

“Although the OPEC and Russia and other non-OPEC oil-producing countries recently reached a historic agreement to scale back production, this will still not be enough to manage the global oversupply of oil,” he told CNBC via email.

With an estimated record of 160 million barrels of oil now held in floating storage on ships, oil traders are scrambling to find alternative storage options for crude both on land and at sea, Reuters reported on Friday, citing unnamed shipping sources.

“Unless global lockdown measures are eased, or a further production cuts are agreed upon, there is a very real possibility that we’ll see a free-fall in the price of Brent Oil futures, and a chance that it will trade at a negative price in the short term,” Qin said.

— CNBC’s Sam Meredith contributed to this report.

OPEC, Russia approve biggest-ever oil cut to support prices amid coronavirus pandemic

REUTERS

BAKU/DUBAI/LONDON (Reuters) – OPEC and allies led by Russia agreed on Sunday to a record cut in output to prop up oil prices amid the coronavirus pandemic in an unprecedented deal with fellow oil nations, including the United States, that could curb global oil supply by 20%.

Measures to slow the spread of the coronavirus have destroyed demand for fuel and driven down oil prices, straining budgets of oil producers and hammering the U.S. shale industry, which is more vulnerable to low prices due to its higher costs.

The group, known as OPEC+, said it had agreed to reduce output by 9.7 million barrels per day (bpd) for May and June, after four days of talks and following pressure from U.S. President Donald Trump to arrest the price decline.

OPEC+ sources said they expected total global oil cuts to amount to more than 20 million bpd, or 20 percent of global supply, effective May 1. OPEC had the same figure in its draft statement but removed it from the final version.

The biggest oil cut ever is more than four times deeper than the previous record cut in 2008. Producers will slowly relax curbs after June, although reductions in production will stay in place until April 2022.

In a statement from the White House, Trump welcomed the commitment by Saudi Arabia and Russia “to return oil production to levels consistent with global energy and financial market stability.”

Earlier on Twitter, Trump wrote: “The big Oil Deal with OPEC+ is done. This will save hundreds of thousands of energy jobs in the United States.”

Thanking Russian President Vladimir Putin and Saudi King Salman for pushing the deal through, Trump added: “I just spoke to them… Great deal for all,”

Oil demand has dropped by around a third because of the coronavirus pandemic. Oil prices jumped more than $1 a barrel in Monday trading after the agreement, but gains were capped amid concern that it would not be enough to head off oversupply with the coronavirus pandemic hammering demand.

Total global cuts will include contributions from non-members, steeper voluntary cuts by some OPEC+ members and strategic stocks purchases by the world’s largest consumers.

Saudi Energy Minister Prince Abdulaziz bin Salman told Reuters that real effective cuts by OPEC+ would total 12.5 million bpd because Saudi Arabia, the United Arab Emirates and Kuwait would cut supplies steeper given higher output in April.

Three OPEC+ sources said non-members Brazil, Canada, Indonesia, Norway and the United States would contribute 4 million to 5 million bpd.

Three OPEC+ sources said the International Energy Agency (IEA), the energy watchdog for the world’s most industrialised nations, would announce purchases into stocks by its members to the tune of 3 million bpd in the next couple of months.

The IEA said it would provide an update on Wednesday when it releases its monthly report. The United States, India, Japan and South Korea have said they could buy oil to replenish reserves.

SEVERE DISTRESS

Trump had threatened OPEC leader Saudi Arabia with oil tariffs and other measures if it did not fix the market’s oversupply problem as low prices have put the U.S. oil industry, the world’s largest, in severe distress.

Canada and Norway had signalled a willingness to cut and the United States, where legislation makes it hard to act in tandem with cartels such as OPEC, said its output would fall steeply by itself this year because of low prices.

The Canadian government said in a statement it welcomed the OPEC+ deal, saying it was committed to achieving price certainty and economic stability.

The deal had been delayed since Thursday, however, after Mexico, worried about derailing its plans to revive heavily indebted state oil company Pemex, balked at the production cuts it was asked to make.

Mexican President Andres Manuel Lopez Obrador said on Friday that Trump had offered to make extra U.S. cuts on his behalf, an unusual offer by the U.S. leader, who has long railed against OPEC.

Trump said Washington would help Mexico by picking up “some of the slack” and being reimbursed later. He did not say how that would work.

A previous agreement by OPEC+ to cut production this year fell apart because of a dispute between Russia and Saudi Arabia, triggering a price war that brought a flood of supply just as demand for fuel was crushed by the coronavirus pandemic.

Global oil demand is estimated to have fallen by around 30 million bpd as more than 3 billion people are locked down in their homes due to the outbreak.

Banks Goldman Sachs and UBS predicted last week that Brent prices would fall back to $20 per barrel as cuts would not be enough to help offset severe demand destruction because of the restrictions to curb the coronavirus outbreak.

Reporting by Reuters OPEC Team, Alex Lawler in London, Lamine Chikhi in Algiers; Nailia Bagirova in Baku, Katya Golubkova in Moscow and Tamara Vaal in Nur-Sultan; Additional reporting by Stephanie Kelly in New York; Florence Tan in Singapore and David Ljunggren in Ottawa; Writing by Andrey Ostroukh and Dmitry Zhdannikov; Editing by Alex Richardson, Tom Brown and Peter Cooney

Oil jumps as Trump talks up truce hopes for Saudi-Russia price war

CNBC

Reuters
KEY POINTS
  • Brent crude futures rose 5.9%, or $1.46, to $26.20 as of 0418 GMT.
  • U.S. West Texas Intermediate (WTI) crude futures were up 4.6% or 94 cents, at $21.25.
GP: Saudi Aramco oil processing facility in Saudi Arabia 200310 EU
A worker at an oil processing facility of Saudi Aramco, a Saudi Arabian state-owned oil and gas company, at the Abqaiq oil field.
Stanislav Krasilnikov | TASS | Getty Images

Crude oil futures surged on Thursday after U.S. President Donald Trump said he expected Saudi Arabia and Russia to reach a deal soon to end their oil price war and Russian President Vladimir Putin called for a solution to “challenging” oil markets.

Brent crude futures rose 5.9%, or $1.46, to $26.20 as of 0418 GMT, while U.S. West Texas Intermediate (WTI) crude futures were up 4.6% or 94 cents, at $21.25.

Trump said he had talked recently with the leaders of both Russia and Saudi Arabia and believed the two countries would make a deal to end their price war within a “few days” — lowering production and bringing prices back up.

He also said he would be meeting with oil executives, where he is expected to discuss a range of options to help the industry amid the sharp hit to demand as the coronavirus outbreak has hammered industrial activity and kept cars off the road.

Speaking at a government meeting on Wednesday, Putin said that both oil producers and consumers should find a solution that would improve the “challenging” situation of global oil markets.

Some analysts cautioned there is still a long way to go before any output cut agreement is struck.

With markets facing 15 million barrels per day (bpd) of oversupply in the second quarter and storage maxing out in April, extraordinary curtailments of oil supply will be needed in May and June, said Kang Wu, head of Asia analytics at S&P Global Platts.

Brent prices need to drop to low-$10 per barrel to force immediate supply curtailment, he added, forecasting global oil demand to decline around 4.5 million bpd this year.

Research firm Rystad Energy estimates global crude oil demand in April will fall nearly 23% year-on-year to 77.6 million bpd.

Saudi Arabia’s crude supply rose on Wednesday to a record of more than 12 million barrels per day, two industry sources said, despite a plunge in demand and U.S. pressure on the kingdom to stop flooding the market.

“This is a clear sign that the Saudis are not ready to back off in the price war, despite the Russians now saying that they will not increase output given the current oversupply in the market,” ING said in a research note on Thursday.

U.S. crude stockpiles rose 13.8 million barrels in their biggest weekly increase since 2016 and analysts expected stocks to keep rising as refineries curb output and gasoline demand falls.

“At the current price, many U.S. oil exploring energy companies won’t be able to make a profit and drilling activities might fall in North America,” CMC Markets analyst Margaret Yang said.

U.S. shale producer Whiting Petroleum Corp, once the largest oil producer in North Dakota, on Wednesday became the first publicly traded casualty of the oil price collapse as it filed for Chapter 11 bankruptcy.

Oil prices surf US-China trade thaw to three-month highs

CNBC

Reuters
KEY POINTS
  • Brent crude futures edged up 8 cents to $66.25 a barrel by 0645 GMT.
  • U.S. West Texas Intermediate (WTI) crude gained 4 cents to $60.97.
GP: Iran Oil Tanker 190121
The oil tanker ‘Devon’ prepares to transfer crude oil from Kharg Island oil terminal to India in the Persian Gulf, Iran, on March 23, 2018.
Ali Mohammadi | Bloomberg | Getty Images

Oil prices remained atop three-month peaks on Thursday, extending a robust streak that began a week ago, as thawing trade relations between the United States and China supported global markets.

Brent crude futures edged up 8 cents to $66.25 a barrel by 0645 GMT, while U.S. West Texas Intermediate (WTI) crude gained 4 cents to $60.97.

Trading volume was thin, with not even news of President Donald Trump’s impeachment by the U.S. House of Representatives stirring the oil market.

“We’re near the top of trading ranges for both Brent and WTI so it’s interesting to see them holding here,” said Michael McCarthy, chief market analyst at CMC Markets in Sydney.

While there is a clear uptrend in place on the daily technical price chart for WTI to potentially move towards $61.50 a barrel, there are also near-term risks — touching that price level may encourage traders to sell, McCarthy said.

″(Trading) volumes are terrible. A lot of people have given up for the year with no scheduled events to push oil markets around,” he said. The trend leaves oil prices set to rise for a third consecutive week, surfing momentum from announcements this month about deeper output cuts by major producers as well as the ‘Phase One’ deal between the United States and China to resolve their long-running trade war.

The deal between the world’s two largest economies has improved the global economic outlook, lifted the prospect for higher energy demand next year and underpinned oil prices.

In a further sign of thawing relations, China’s finance ministry on Thursday published a new list of six U.S. products that will be exempt from tariffs starting Dec. 26.

Just the week before, the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers such as Russia agreed to deepen production cuts by a further 500,000 barrels per day (bpd) from Jan. 1 on top of previous reductions of 1.2 million bpd.

According to weekly data released by the Energy Information Administration on Wednesday, U.S. crude inventories dropped 1.1 million barrels in the week to Dec. 13, while gasoline and distillates stockpiles rose.