Oil rockets higher after Trump threatens Iran


London (AFP)

Oil prices rocketed higher on Wednesday after US President Donald Trump threatened to shoot at Iranian boats in a key waterway for crude shipments.

Earlier in the day, the European benchmark, Brent North Sea crude for delivery in June, had fallen to $15.98 per barrel -- the lowest level since June 1999 as investors continued to worry about oversupply in view of the slump in demand as countries shut much of their economies to slow the spread of the coronavirus.

West Texas Intermediate's new June contract dropped more than 10 percent to as low as $10.26.

But prices subsequently rocketed higher, with WTI climbing nearly 40 percent at one point to hit $16.18.

"It would be nice for oil's push higher to come from a less troublesome catalyst," said Spreadex analyst Connor Campbell.

"Donald Trump's order for the navy to 'shoot and destroy' Iranian gunboats that 'harass' American ships causes some investors to return to the black stuff, lifting Brent crude back towards $21 per barrel with a near 8 percent comeback."

The Gulf is a major gateway for oil to reach international markets, and previous spikes in tensions between US and Iranian vessels have seen crude prices similarly surge higher.

Trump's order came one week after 11 small armed Iranian Revolutionary Guards Corps speedboats swarmed around US Navy and Coast Guard ships in international waters in the northern Gulf.

Iran said it put its first military satellite into orbit Wednesday, making it an emerging "world power", in a move that also stoked tensions.

The rebound in crude prices came just two days after markets went into freefall with the May contract of US benchmark WTI diving to minus $40 on Monday.

With crude demand virtually non-existent owing to virus lockdowns, and production still high despite storage at the bursting point, traders holding the May contract dumped it in order to avoid taking possession of the oil.

The crisis in the oil market caused by the coronavirus was compounded by a price war between Russia and Saudi Arabia.

While the pair drew a line under the row and led producers into slashing output by 10 million barrels a day, that has not been enough to prevent historic price falls.

- 'Monster rebound' -

But Briefing.com analyst Patrick J. O'Hare noted that the fact that futures contracts for July WTI oil are above $20 has also reassured many investors.

"The positive price bias along the oil futures curve implies that there is some renewed hope this morning that a reopening of the economy in coming months will mitigate the pressing storage issue today as demand picks up at a time when supply is going to be reduced," he said in a note to clients.

That hope was spilling over into equity markets.

"The monster rebound in the oil market has boosted sentiment in stocks, and in turn the major equity benchmarks are set to finish the day deep into positive territory," said market analyst David Madden at CMC Markets UK.

The reason, he said, is that "energy acts as a proxy for global demand," and the huge drops in oil prices seen earlier in the week were an indication of a very severe recession.

Shares in energy companies popped higher, with shares in BP jumping by 6 percent and Shell by 6.7 percent.

US oil companies saw smaller gains, with Chevron up 2.7 percent and Exxon climbing 2.8 percent.

However, shares in Netflix, which reported soaring profits after trading closed on Tuesday, slid more than 2 percent to around $424.

Its share price had risen strongly in recent weeks as investors bet it would benefit from lockdowns worldwide, and the firm did not disappoint with a record increase in subscriptions of nearly 16 million.

- Key figures around 1530 GMT -

West Texas Intermediate: UP 24.6 percent at $14.41 per barrel

Brent North Sea crude: UP 4.9 percent at $20.28

London - FTSE 100: UP 2.3 percent at 5,770.63 points (close)

Frankfurt - DAX 30: UP 1.6 percent at 10,415.03 (close)

Paris - CAC 40: UP 1.2 percent at 4,411.80 (close)

EURO STOXX 50: UP 1.6 percent at 2,836.60

New York - Dow: UP 1.7 percent at 23,410.46

Tokyo - Nikkei 225: DOWN 0.7 percent at 19,137.95 (close)

Hong Kong - Hang Seng: UP 0.4 percent at 23,893.36 (close)

Shanghai - Composite: UP 0.6 percent at 2,843.98 (close)

Euro/dollar: DOWN at $1.0831 from $1.0859 at 2030 GMT

Dollar/yen: UP at 107.85 from 107.77 yen

Pound/dollar: UP at $1.2329 from $1.2301

Euro/pound: DOWN at 87.88 pence from 88.27 pence