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James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil is trading lower on Friday after a solid short-covering rally the previous session and a slight follow-through to the upside earlier today.

Thursday rally was in reaction to an announcement from the U.S. government about buying crude oil for the strategic reserve. However, this news was only strong enough to spook a few of the weaker shorts out of their positions.

Two factors continue to weigh on investors’ minds:  weak demand caused by a global recession and oversupply caused by excessive production from Russia and Saudi Arabia.

Although crude oil is at bargain basement prices, no one is willing to aggressively buy it because they don’t have anywhere to store it. Governments are filling up their reserve tanks. Oil tankers are at capacity and multiple storage points can’t handle any more supply.

At 16:24 GMT, May WTI crude oil is at $24.67, down $1.24 or -4.79% and June Brent crude oil is at $29.67, down $0.63 or -2.08%.

Outside factors also played a role in this week’s extreme volatility. The U.S. Dollar soared to levels not seen in many years. This weighed on demand for dollar-denominated crude oil. This week, nations poured increasing stimulus into their economies while central banks flooded markets witch cheap dollars to ease funding strains.

Perhaps dampening the bearish news was President Trump’s hinting that he may intervene in the price war between Saudi Arabia and Russia. On Thursday, prices rose after the U.S. announced plans to buy up to 30 million barrels of crude for its emergency stockpile by the end of June and reports that regulators in Texas might curtail output.

US Seeks $3 Billion to Boost Oil Producers as Prices Plunge

The Trump administration said Thursday it is seeking $3 billion from Congress to top up the country’s strategic petroleum reserves, potentially propping up U.S. oil producers after crude prices crashed globally, APNews reported.

President Donald Trump had directed the Energy Department last week to fill the United States’ emergency stash of crude oil to the top, over objections from congressional Democrats who said he was favoring climate-damaging fossil fuels and the profits of oil giants.

Plummeting crude prices benefited U.S. consumers filling up their cars, Trump said Thursday. “But on the other hand, it hurts a great industry, and a very powerful industry,” Trump told reporters.

Energy Secretary Dan Brouillette told reports Thursday the move was about filling up the country’s 713.5 million barrel Strategic Petroleum Reserve at a time of cheap oil, not about throwing U.S. oil producers a lifeline in rough markets. The reserves are stashed underground in Texas and Louisiana.

“It’s a common-sense move. Everyone who’s done any personal investment knows you do your best to buy low and sell high,” Brouillette said.


Short-Term Outlook

Sideways to lower prices are expected unless Saudi Arabia and Russia call off the price war.

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