By Barani Krishnan
Investing.com - Oil prices closed up as much as 20% on Wednesday on short-covering after two days of carnage and on President Donald Trump’s tweet authorizing the navy to destroy Iranian gunboats that harass U.S. vessels at sea. But the growing glut in oil made the recovery seem tenuous.
U.S. West Texas Intermediate crude’s front-month June contract settled up $2.21, or 19%, at $13.78 per barrel. It surged more than 40% at the day’s highs, reaching $16.20.
WTI’s previous front-month, May, expired on Tuesday after collapsing by a staggering 440% over a three-day session that took U.S. crude futures to subzero pricing for the first time in their 37-year history.
Brent, the London-traded global benchmark for crude settled up $1.04, or 5.4%, at $20.37, after rising to $22.44 earlier.
“With risk managers and brokers digesting the price-event of Monday, we likely continue to have this week some episodes of risk-management repositioning,” said Olivier Jakob at Zug, Switzerland-based oil risk consultancy PetroMatrix.
Trump added fuel to oil’s rebound with his tweet against Iran.
"I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea," he wrote. Exchange of hostile words between Washington and Tehran typically tend to ratchet up political tensions in the Middle East, the world's largest production region for oil.
No one, however, knows what provoked Trump into issuing his latest order against Tehran. But tensions between the United States and the Islamic Republic have remained high since the January killing of top Iranian general Qassem Soleimani by U.S. forces acting on the president's command.
Oil’s rebound also came as the U.S. Energy Information Administration reported that crude stockpiles in the country rose by 15 million barrels last week, bringing to some 65 million the total build over the past four weeks. Based on the latest number, the weekly average for builds has been 16.25 million barrels per week.
For context, the crude build number is being read by the market along with another figure in the EIA report stating storage levels for crude at the Cushing, Okla. hub for physical deliveries on expiring WTI contracts.
According to the EIA, Cushing stockpiles rose by almost 5 million barrels last week to just shy of 60 million barrels. Cushing’s official capacity has been cited as 90 million barrels. But those in the know say its real potential is to take up to 85 million barrels. Reuters, however, reported on Tuesday that all the space in Cushing has been leased out.
Trump, in another tweet on Tuesday, also vowed not to let U.S. shale oil drilling — which has made America the world’s top crude producer — die.
“We will never let the great U.S. Oil & Gas Industry down,” the president tweeted. “I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!”
U.S. officials have said in recent days that Washington is considering blocking Saudi shipments of crude oil, or putting tariffs on those shipments, adding to difficulties for the cargos now on the water.
Reuters reported that Saudi Arabia was looking into rerouting some 40 millions barrels of its oil headed for the U.S. market if the Trump administration decides to block all foreign crude from entering the United States.
The decision won’t be an easy one for Trump. Senior industry representatives, whom the president met two weeks ago, have told him they don’t want any government meddling. They are most concerned about potential taxes and other restrictions on incoming oil that could complicate the work of refiners, who particularly depend on heavier Middle East crude grades that are typically not U.S. produced, to make transportation fuels such as diesel, rail and jet fuels.
But Trump needs to balance that with his eagerness to save thousands of drillers impoverished by the oil crash ahead of his bid for reelection in November.
Oklahoma's energy regulator on Wednesday ruled in favor of an oil company's emergency application to classify some oil production as economic waste, enabling producers to maintain leases where production is halted due to low prices.
The decision represents the first win by regional oil groups seeking relief from state regulators as prices fall to levels that are not profitable to pump.
It comes after Texas deferred decision on a request by at least two oil drillers that output cuts be mandated in the largest U.S. crude-producing state.