(Bloomberg) -- Oil touched session highs then sold off abruptly in the final half hour before settlement on Wednesday after news that President Trump is set to meet with top executives at the nation’s largest oil companies to discuss measures to help the industry.
The meeting, set for Friday, comes after a flurry of U.S.-driven diplomacy, with Trump speaking with both Russia and Saudi leaders to broker a deal, though the former OPEC+ allies have no plans to speak to each other, the Kremlin said.
The move underscores just how much oil producers are reeling from the price rout that cratered the market and pushed West Texas Intermediate crude to post its worst quarter on record. On Wednesday, Whiting Petroleum Corp., facing more than a quarter-billion dollar debt it could not pay, filed for bankruptcy as the market collapse struck down another shale explorer. In some areas, producers are said to be receiving even negative prices for their oil.
Even before news of the meeting, speculation that the Trump administration was taking steps to take American oil off circulation and into storage helped U.S. futures outperform global benchmark Brent crude. The premium of London-traded Brent over U.S. West Texas Intermediate narrowed to settle at $1 a barrel, the smallest since November 2016, making U.S. oil not competitive in foreign markets. Time spreads -- the gap between two calendar months that signals supply and demand balance -- rallied along the WTI futures forward curve and into settlement as well.
However, such moves would likely only buy some time instead of solving the issue at hand: too much oil in global markets.
“Being able to put oil into the strategic petroleum reserves would go a long way for the market,” said Phil Flynn, senior market analyst at Price Futures Group Inc. “We’re not out of the woods yet here for a major drop in price.”
Traders largely shrugged off the biggest American crude stockpile increase since 2016 -- inventories jumped 13.8 million barrels last week. Supplies at the nation’s biggest storage hub at Cushing, Oklahoma, also piled up, according to the Energy Information Administration. Gasoline demand also plummeted to its all-time low.
Still, the increase will likely reinforce what many believe is inevitable in coming weeks and months: that physical tanks, ships and caverns around the world will fill to the brim with supply as the spread of the coronavirus shuts down economies. Two of the world’s largest oil producing nations duking it out in a price war also doesn’t help.
Saudi Arabia boosted output by 290,000 barrels a day in March to a one-year high of about 10 million a day and state-run producer Saudi Aramco is now supplying record volumes of more than 12 million barrels a day. The company has been loading 15 tankers with 18.8 million barrels of oil, it said Wednesday in a tweet.
Yet, Russia doesn’t plan to increase output because it’s not profitable to do so, according to a government official familiar with the country’s plans.
“With demand destruction across the globe and now with Saudi flooding the markets with oil, we feel it is only a matter of time before oil is trading in the teens and perhaps the low teens,” said Tariq Zahir, a fund manager at Tyche Capital Advisors LLC.
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