By Peter Nurse
Investing.com - Oil markets surged Thursday, amid hopes that the price war between Russia and Saudi Arabia, which has flooded the market with extra supply, may be coming to an end.
AT 9:20 AM ET (1320 GMT), U.S. crude futures traded 8.9% higher at $22.12 a barrel, while the international benchmark Brent contract rose 8.5% to $26.84.
Global oil prices have fallen by roughly two-thirds this year as the coronavirus has slammed global economies at the same time as the world's two largest exporters, Saudi Arabia and Russia, have started to pump extra supply into the market.
U.S. President Donald Trump said late Wednesday that he had talked with the leaders of both countries and believed the two would make a deal to end their price war within a "few days."
"Worldwide, the oil industry has been ravaged," he said. "It’s very bad for Russia, it’s very bad for Saudi Arabia. I mean, it’s very bad for both. I think they’re going to make a deal," Trump added.
Comments since out of the Kremlin have been reasonably constructive, but Saudi Arabia's crude supply rose on Wednesday to a record of more than 12 million barrels per day, Reuters reported.
“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,” said ING, in a research note.
Even if the two sides do come to an agreement, and that’s by no means a given, it would be very difficult to get the oil market back into balance given the extent of the demand destruction caused by the shutdowns to the various countries around the world.
This hit to demand was amply illustrated by the latest data Thursday as the number of Americans filing claims for unemployment benefits topped a whopping 6 million as more jurisdictions enforced stay-at-home measures to curb the coronavirus. That’s approaching 10 million people over the last two weeks.
The news comes after the third-biggest combined rise in stocks of U.S. crude and gasoline in history, after the Energy Information Administration said commercial crude oil inventories in the U.S. increased by 13.8 million barrels in the week ending March 27. Gasoline stocks rose 7.5 million barrels.
The extent of the build up in stocks was illustrated by Energy Intelligence Group, which stated Thursday that most of the available oil storage in the U.S. and Caribbean has been leased up or filled with products in the last 10 days. Texas Railroad Commissioner Ryan Sitton tweeted, meanwhile, that some producers had been told by pipeline companies to stop producing, given the lack of physical offtake for their crude.