Oil prices snapped back on Wednesday, jumping more than 10% as a few positive signs emerged.
West Texas Intermediate futures settled up 19% to $13.78. Brent futures settled up 5.4% to $20.37. Both remain at remarkably low levels—so low that virtually every producer in the world loses money extracting oil at these levels.
Still, the rise in the front-month contract bodes well for oil. Even more important, futures dated for later months rose, too. While most investors expect oil to struggle for the next couple of months as Covid-19 restrictions cause demand for oil to drop, they are hoping that prices rise enough by the end of the year to justify an investment. And on Wednesday, the January 2021 future contract rose above $30, after closing the prior day at $27.67.
Stocks were up, with Exxon Mobil (ticker: XOM) gaining 3.1%.
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A few news events appear to be boosting the price. On Wednesday, the Australian government said it would buy crude to stockpile. And the Securities and Exchange Commission’s uptick rule may have curbed some of the short selling that was taking place in the oil market. The United States Oil Fund ETF (USO) fell more than 25% on Tuesday, triggering the uptick rule that only allows short sellers to bet against an asset if it’s on the rise. Short selling may have contributed to the historic plunge in oil prices this week that briefly forced the West Texas futures into the red on Monday.
Oil prices may have also moved higher in response to a tweet from President Donald Trump saying he had ordered the U.S. Navy “to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea.” Conflict in the Middle East generally leads to oil prices rising as oil supplies are threatened. Trump also tweeted on Tuesday that he wants the government to “make funds available” to oil companies, raising the possibility of a bailout of the sector.
Still, other data point to problems ahead. The U.S. Energy Information Administration said on Wednesday that U.S. crude inventories rose 15 million barrels in the latest week, on top of a record build of 19 million barrels the week before. As storage fills, oil companies will likely have to stop pumping.
Write to Avi Salzman at avi.salzman@barrons.com
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Oil Rose From Record Lows. The Gains May Not Last. - Barron's
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