US to Talk with Saudis About Oil Stabilization
March 23rd, 2020
Bloomberg reports the Trump administration is planning to send a special energy envoy to Saudi Arabi later this week to work with the kingdom to stabilize the global oil market. This will be a challenge as prices have fallen so far that regulators in Texas are considering cutting production there for the first time in nearly 50 years. Many analysts do not like this idea and hope that Texas doesn’t take these steps, but these are certainly unprecedented times. The energy market has been thrown a whole mess of issues as this quote from Steven Schork suggest. “This is Operation Desert Storm, Enron, 9/11, Hurricane Katrina/Rita, Lehman Bros, combined.” said Stephen Schork, president of the energy consultancy Schork Group Inc. “And we are waking up to this combo every single day.”
Economist are putting out some very gloomy forecast as the US economy has essentially come to a sudden stop. It is certainly fair to assume that a recession is being price into these markets with many reports saying that the next quarter is likely to be the worst for growth since records began in 1947. Goldman Sachs Inc predicts a 24% contraction April-June period. Morgan Stanley see a 30.1% plunge and Federal Reserve Bank of St. Louis President James Bullard is saying growth my drop 50% and unemployment hit 30%.
Last week was a very crazy week in the markets and there has been some extreme volatility. WTI crude oil prices closed down on Friday by 10.3% after rising by 23.8% on Thursday. For the week WTI crude oil prices fell by 29%, which is the largest weekly drop since 1991. However, WTI crude oil prices had the largest single day rise on Thursday (23.8%) since 1983. Both WTI and Brent crude oil have fallen by more than 50% in the past month.
The Baker Hughes Rig Count report out on Friday had oil rigs down 19. Of those 19 rigs 11 were in Texas. The comments have been that US production would come down and this current situations looks like it will help accelerate that process as a decline of 19 rigs is a big weekly move.
There are still so many unknows and uncertainty and markets do not like these things, so it is really hard to estimate were all these markets and prices are headed. One thing is for sure and that is that market volatility will remain high. For example, just from today. Last night stock futures opened Sunday night trading limit down. Then just a few minutes ago around 7:30 AM as news of the Fed saying they will have unlimited assets purchase (QE) stocks surge back to post gains and move into positive territory.
Gasoline is down in early trading as it seems to be taking the biggest hit as more and more places and people are on lockdown and told to work from home or only go out for essential/emergency trips.