Oil drops nearly 2%, erasing earlier gain of more than 11%

- Advertisement -
- Advertisement -
- Advertisement -
- Advertisement -

Oil prices turned negative in afternoon trading on Thursday, as optimism that had previously supported prices began to fade. Earlier oil moved higher on several bullish factors, including U.S. companies cutting production, Saudi Arabia raising its official oil selling price and gasoline demand improving as economies around the world reopen.

But oil couldn’t hold onto early gains, and ultimately settle in the red. West Texas Intermediate, the U.S. benchmark, shed 44 cents, or 1.83%, to settle at $23.55 per barrel. Earlier in the session WTI had been up more than 11%, hitting a high of $26.74. Brent crude, the international benchmark, settled 26 cents lower at $29.46 per barrel.

Still, for the week WTI is up 19%.

“Nascent signs of rebounding gasoline demand in the U.S. and a rapid curtailment of oil production that has seen U.S. producers cut over 1 million barrels per day of output in a matter of weeks has enabled oil prices to recover,” Again Capital’s John Kilduff told CNBC. “Volatility will remain the watchword, but there is an increasing sense that the worst is behind the industry, at this point.”

A drilling crew secures a stand of drill pipe into the mouse hole on a drilling rig near Midland, Texas February 12, 2019.
A drilling crew secures a stand of drill pipe into the mouse hole on a drilling rig near Midland, Texas February 12, 2019.

On Wednesday, data from the Energy Information Administration showed that for the week ending May 1 production declined by 200,000 barrels per day to 11.9 million bpd, which is more than 1 million bpd below March’s record high. Exxon, Chevron and ConocoPhillips are among the companies that have cut production in the face of depressed prices.

“There has just been a fierce reaction by U.S. oil and exploration and production companies to really crater U.S. output. It’s still very high, but it’s working its way down rapidly,” Kilduff added.

While inventory in the U.S. is still rising, it’s now at a slower clip. Last week, stockpiles grew by 4.6 million barrels, which was smaller than the 8.67 million barrels build analysts had been expecting, according to FactSet. And while demand for gasoline is still well below its highs, government data showed that it is starting to turn a corner as states open up their economies.

Mizuho energy analyst Paul Sankey noted that oil also got a boost after Saudi Arabia raised its official oil selling prices, which “alleviates pressure on global crude pricing.”

“They are still fighting for market share (against Iraq/Iran primarily) in Asia, but have backed off US market share competition all-but completely,” he wrote in a note to clients Thursday.

Rally overdone?

Given WTI’s nearly 40% gain this month, some say the rally is overdone, especially as storage around the world continues to fill.

“A shift in market sentiment was lifting prices earlier this week, but the physical overhang does not want go away just yet,” Citi analyst Francesco Martoccia said Wednesday. “The supply picture remains uncertain in size and timing, leaving a true read of US balances murkier in the short term,” he noted.

“We’re not out of the woods yet,” Kilduff added. “There still may be one more flirtation with negative pricing when this June contract goes off the board in a couple of weeks, but beyond that we should be clear of those kind of worries.”

Home of Science
Follow me

- Advertisement -




Drakeo the Ruler dies after stabbing at LA music festivalon December 19, 2021 at 6:01 pm

The 28-year-old was stabbed during an altercation backstage at a Los Angeles music festival.Image source, Getty ImagesUS rapper Drakeo the Ruler has died after...

Hull Fair: Nursery nurse thrown off Airmaxx 360 ride gets payouton August 17, 2022 at 10:29 am

Jade Harrison suffered nightmares after the accident at Hull Fair in October 2019.Image source, Getty ImagesA nursery nurse catapulted from a Hull Fair ride...

‘I haven’t looked back since my first ballet class’on August 24, 2022 at 7:18 am

An 11-year-old boy describes his excitement at being picked for a prestigious dance school.An 11-year-old boy describes his excitement at being picked for a...

Kingstanding stabbing: Boy 14, killed in attackon June 1, 2021 at 6:02 am

Up to seven people ran away from the scene of the attack in Kingstanding, Birmingham, police say.Up to seven people ran away from the...

AI and drones in £800m Budget technology packageon March 2, 2024 at 10:30 pm

The Treasury says healthcare and policing will be more efficient as a result of the reforms.The Budget will contain an £800m package of technology...
Home of Science
Follow me