By Barani Krishnan
Investing.com - U.S. crude prices closed up 24% on Thursday, in a u-turn to the previous day’s losses, after the Trump administration said it will buy oil to top up the nation’s reserves and support American drillers hurt by the coronavirus crisis and ill-timed production hikes by Saudi rivals.
Traders also responded positively to the announcement by leading U.S. shale oil producer Continental Resources that it will halve its capital expenditure and slash rigs in the Bakken and Oklahoma drilling fields where it operated.
West Texas Intermediate, the New York-traded benchmark for U.S. crude prices, settled up $5.08, or 24.4%, at $25.91 per barrel. On Wednesday, WTI settled down 24% at $20.38, its lowest level in 18 years.
Brent, the London-traded global benchmark for crude, settled up $3.59, or 14%, at $28.47.
“We’re in a roller-coaster market for sure and the ride isn’t over till the week ends tomorrow,” said John Kilduff, founding partner at New York energy hedge fund Again Capital.
“There’s been a pretty robust response to the price crunch as we’re witnessing from the Continental statement and the administration’s actions,” Kilduff added. “That said, it must be remembered that this is just a function of market dynamics, meaning that the overall picture for oil remains bearish given the absolute loss of demand from Covid-19.”
U.S. Energy Secretary Dan Brouillette said the Trump administration has asked Congress for a $3 billion funding to buy 77 million barrels to top up the Strategic Petroleum Reserve.
Thirty million barrels will be purchased immediately and the balance between 60 and 90 days, Brouillette said.
The SPR, which holds the nation’s oil reserves in underground salt caverns in Louisiana, has a total capacity of 713.5 million barrels. As of March 15, total volume of crude in its hold was at 649.1 million barrels, according to data from the Energy Information Administration.
At $3 billion for 77 million barrels, the administration would be paying around $39 per barrel. At Thursday’s settlement, the math shows the government will be paying U.S. sellers a premium of $14 a barrel, or 56%.
Continental Resources said it will cut its 2020 capital budget by $1.2 billion, a 55% reduction from its original budget of $2.65 billion.
It also said it will reduce its average rig count in the Bakken to 3 from 9 currently and in Oklahoma to 4 from 10.5.
Despite Thursday’s rebound, WTI and Brent remain down about 57% on the year.
Goldman Sachs (NYSE:GS) says it expects crude prices to remain at around $20 per barrel as demand for oil contracts by around 8 million barrels per day by late March due to the global economic shutdown forced by the coronavirus. The pandemic aside, the market has also been hit by a massive production hike planned by Saudi Arabia which is also offering its crude at rock-bottom prices to grab whatever market share it can from Russian and U.S. exporters.