International oil prices rebound following Trump warning
Oil prices rebounded on Wednesday after Donald Trump stoked geopolitical tensions with an announcement that he had ordered US warships to “shoot down and destroy” Iranian vessels.
The intervention by the US president sent Brent crude back above $20 a barrel, after the international benchmark tumbled to its lowest level since 1999 in the morning on concerns over the collapse in oil demand caused by the coronavirus crisis.
“I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea,” Mr Trump said in a tweet.
The prospect of renewed tensions in the Middle East gave crude a lift during a week where prices have struggled to contend with an evaporation in demand brought about by the Covid-19 pandemic.
Brent rose 11 per cent to trade at $21.47 as markets opened in New York. The S&P 500 rose 1.6 per cent following two days of back-to-back falls, while the tech-heavy Nasdaq Composite climbed 1.9 per cent.
West Texas Intermediate, the US marker, rose 25 per cent to $14.43. It almost halved during the previous session and earlier in the week fell into negative territory for the first time as producers were forced to pay buyers to take oil off their hands ahead of the expiry of futures contracts.
Brent crude remains down around 30 per cent so far this week as lockdowns and travel restrictions enacted by governments have caused oil demand to tumble by as much as a third from pre-crisis levels.
Oil production levels have remained robust even as the virus destroys demand, triggering a global supply glut. An unprecedented cut of almost 10 per cent of global supply by Opec and its allies is set to take effect next month, but traders worry it is not enough to offset the collapse in consumption.
The head of the International Energy Agency on Tuesday called for the output reductions to be expedited and deepened. Opec members met by phone overnight but there was no hint of a change in their plans.
But with global storage locations reaching capacity, analysts at JBC Energy said the Opec cuts cannot “come fast enough”.
“The logistical realities of tank tops and mounting offshore storage require swift action, with refineries no longer a reliable taker of crude as their own product inventories fill to the brim,” they said.
Iran’s oil minister Bijan Namdar Zanganeh said on Wednesday that cuts already agreed would take time to be felt in the market and called for greater global co-operation on curtailing supply, particularly by North American shale producers. “Opec on its own cannot resolve the current problem,” he told state television.
European stocks shifted higher, with gains of 1.6 per cent for the continent-wide Stoxx 600 index.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said the distortions in oil markets were likely to make themselves felt across equity, fixed income and foreign exchange markets in the coming weeks.
“But our view is that the recent period of extreme dislocation in the US oil market should pass in the second half of the year,” he added.
In fixed income, the yield on the 10-year US Treasury ticked up 0.04 percentage points to 0.605 per cent as investors moved out of the core government debt.