Oil prices 'recover' some despite continued weak demand

Bloomberg/Fuel Fix:
Oil extended its recovery from Monday’s plunge below zero, but trading remains volatile with the market under intense pressure from a swelling global glut.

Futures in New York rose as much as 17% to top $16 a barrel. Already inundated with bearish signals, the market shrugged off data from Wednesday showing U.S. crude stockpiles at a three-year high and petroleum demand at a record low. An order by President Donald Trump authorizing the Navy to destroy any Iranian gunboats harassing American ships also lent some support.

Prices remain down 75% this year, and more production shut-ins are likely as the value of real oil crashes globally. ICE Futures Europe Ltd. confirmed Tuesday that it had taken steps to prepare for negative Brent pricing, while the Chicago Mercantile Exchange took similar measures earlier in the week. Meanwhile, oil traders are rewriting their risk models to accommodate potentially limitless declines.

OPEC+’s deal to slash daily production by about 10 million barrels a day will only take effect from May 1 and will in any case prove insufficient to offset demand losses that could reach 30 million barrels a day. In the U.S., the world’s biggest oil producer, operators have started shutting wells and halting drilling, steps that could cut output by 20% and leave thousands of workers unemployed.

“While some may see negative WTI pricing earlier this week as a quirk of the futures market, it’s an ominous sign,” said Victor Shum, vice president of energy consulting at IHS Markit. It “reflects brutal market forces that are forcing supply to adjust to a much lower level of world oil demand.”

Oil markets are also having to grapple with a wave of volatility spurred by exchange-traded funds. The United States Oil Fund said it may roll more of its WTI contracts forward due to extraordinary market conditions, while the futures division of brokerage INTL FCStone Financial Inc. is limiting the ability of some clients to enter into new trades in the most active oil benchmarks.
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With the US crude stockpile at a three year high, there is a real limit on what to do with current production.  With the price at $16 oil is still well below the cost of production.

Trump's orders to deal with Iranian harassment is called for, but I do not see it as having any direct impact on the oil supply.  Iran's production was already weak before the collapse of oil demand.  It nonsensical threats to US ships will not improve its position and could lead to attacks not only on the swarm attacks of its boats but also on its naval bases and could also lead to attacks on its oil facilities if it escalated.  It has already been proven that the world can live without Iranian oil.

Currently, Venezuela has been turning to Iran for help on its loss of production, but the world does not need Venezuelan oil either.  Both countries were already in a bind because of their policies opposed by the US.  The US recently told Chevron to wind down its operations in Venezuela.  Venezuela's contribution to the world has been to demonstrate that socialism really sucks.

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