Oil rallies on Gulf tensions and output cuts
LONDON (Reuters) – Oil rose on Thursday, spurred by rising tensions in the Middle East, output cuts by producing nations to tackle oversupply and the promise of more government stimulus to ease the economic pain of the new coronavirus pandemic.
FILE PHOTO: A pumpjack is shown outside the Midland-Odessa area in the Permian basin in Texas, U.S., July 17, 2018. REUTERS/Liz Hampton/File Photo
Brent crude LCOc1 was up $1.60, or 7.8%, at $21.97 per barrel by 1123 GMT. U.S. crude CLc1 rose $1.74, or 12.6%, at $15.52 a barrel.
Oil prices have suffered one of their most tumultuous weeks.
The expiring WTI front-month contract CLc1 on Monday fell into negative territory for the first time as traders paid buyers to take crude off their hands given a lack of storage space due to the current supply glut.
Brent has lost roughly two thirds of its value this year.
Concerns about the collapse in demand because of travel restrictions to contain the coronavirus pandemic and a shortage of space to store oil still dominate, but analysts say they do not expect a repeat of Monday’s price shock.
The rally on Thursday followed an announcement from U.S. President Donald Trump he had instructed the U.S. Navy to fire on any Iranian ships that harass it in the Gulf, although he added later he was not changing the military’s rules of engagement.
The head of Iran’s Revolutionary Guards said Tehran will destroy U.S. warships if its security is threatened in the Gulf.
“This ratchets up tensions once again between the U.S. and Iran. However, given the glut we have in the oil market, it is difficult to see this offering lasting support to the market, unless the situation does escalate further,” ING’s head of commodities strategy Warren Patterson said.
Graphic – Cushing crude stockpiles surge: here
Output cuts by producers also supported prices. Kuwait said it had begun reducing oil supply to the international market without waiting for the deal agreed by major oil exporting countries to take effect on May 1.
OPEC and other oil producing nations, a grouping known as OPEC+, agreed this month to cut output by a record amount, around 10% of global supply, to support oil prices.
“It is questionable that bringing forward the planned output restraint by a week would make a material difference, especially as no demand consolidation is anticipated in the current quarter,” PVM Oil Associates analyst Tamas Varga said.
In addition to the OPEC+ deal, other producers are also pledging reductions. Oklahoma’s energy regulator said companies could shut wells without losing their leases. The state is the fourth-largest oil producer in the United States.
U.S. crude inventories rose by 15 million barrels to 518.6 million barrels the week to April 17, close to the record of 535 million barrels set in 2017, data showed on Wednesday.
Graphic – OPEC’s share of India’s crude oil imports falls to record low: here
The stocks build was less than the market had expected, analysts said, providing some support for prices, while the promise of more government stimulus improved market sentiment across global markets.
The U.S. House of Representatives expects to pass a nearly $500 billion coronavirus relief bill on Thursday to provide funds to small businesses and hospitals.
Reporting by Bozorgmehr Sharafedin in London, additional reporting by Aaron Sheldrick in Tokyo; editing by Barbara Lewis and Jason Neely