Oil Prices Soar As Traders Prepare for Wild Ride to Continue

West Texas Intermediate futures that will deliver oil in June, the U.S. benchmark, rose 20% to $16.47 a barrel. Brent crude futures, used to set prices for oil throughout global energy markets, rose 8.6% to $22.12 a barrel.

Helping prices regain some lost ground: signs of a recovery in demand for oil in China, which is emerging from coronavirus lockdowns, and tensions between the U.S. and Iran. The two nations engaged in a new round of antagonism Wednesday, when Tehran said it had launched its first military satellite into space.

“When you look at China, road traffic and refinery operations are back up,” said Norbert Rücker, head of economics at Swiss private bank Julius Baer. “Don’t forget the geopolitical side too,” he added, referring to the potential for U.S.-Iranian tensions to disrupt the movement of oil through the Strait of Hormuz, a vital channel for tankers.

The advance in prices Thursday continues a period of outsize moves in global energy markets, which have rippled through to oil producers, bond markets and currencies. The price of the most actively traded WTI futures contract has moved up or down 10%, on average, on each trading day since the start of March.

That compares with an average move in either direction of 1.5% in 2019 as a whole, according to FactSet data.


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Traders and analysts say prices will continue to swing. One gauge of how volatile WTI futures prices are expected to be over the next 30 days, the Cboe Crude Oil ETF Volatility Index, has soared more than 730% this year to its highest level on record.

Like the better-known VIX index tracking volatility in the stock market, the index uses options prices to calculate how far traders are expecting prices to move over the next month.

The oil volatility options aren’t tied to oil futures prices directly but instead to United States Oil Fund LP, an exchange-traded fund that aims to match U.S. crude prices. The fund has been at the center of the oil price drama in recent days. It accumulated a huge position in the futures market thanks to a rush of cash from individual investors.

The pandemic has stopped the world from consuming tens of millions of barrels of oil it would otherwise use every day, and storage space is filling up. Production cuts by the Organization of the Petroleum Exporting Countries and its allies, led by Russia, won’t immediately offset this decline in demand.

U.S. crude prices remain 41% lower than they were at the end of last week. In an aberration of historic proportions, the lightly traded May WTI futures contracts fell below $0 for the first time on Monday, meaning traders had to pay buyers to take oil off their hands.

“We’re close to capitulation,” said Marwan Younes, chief investment officer at Massar Capital Management. “We’re getting close to the point when people just stop trying to buy this,” he added, referring to U.S. crude oil futures.

Crude-oil stockpiles in the U.S. climbed by 15 million barrels to 518.6 million barrels last week, the Energy Information Administration said Wednesday, putting them about 9% above the five-year average. Production fell by a modest 100,000 barrels a day.



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