America’s Season for Peak Fuel Demand Starts Off With a Whimper

For all the optimism over a recovery in oil demand and prices, the weekend that heralds the U.S. summer driving season proved to be a damp squib.

While beaches were open and states across the country emerged from coronavirus-related lockdowns, demand for gasoline ended up falling over the Memorial Day holiday weekend. That may have been because people kept their driving local, when in previous years they had traveled farther, according to Andy Lipow, president of Lipow Oil Associates LLC in Houston.

The lackluster start to what is typically considered the season for peak American fuel demand shows how vulnerable the oil market remains as the fallout from the coronavirus crisis haunts economies. Crude prices have surged about 80% this month, after a historic collapse below zero in April, on supply cuts by major producers as well as optimism that consumption is recovering as lockdowns ease.

“The public stayed closer to home and consumed less gasoline because they were going to recreational venues nearby rather than traveling long distances around the country,” Lipow said.

Gasoline demand fell 1.34% from Thursday to Monday of the holiday weekend compared to the week prior, Patrick DeHaan, an analyst at GasBuddy, said in a tweet Tuesday. Consumption on Monday fell 0.5% from the week prior. Compared with a year earlier, gasoline use is estimated to have slumped 25% to 35% over the long weekend.




However, gasoline prices are on the rise. The national average price has risen for four consecutive weeks and gained 5.5 cents over the last week to $1.96 a gallon, according to GasBuddy.

In the San Francisco Bay area, for example, traffic across seven toll roads rose from a week earlier on Saturday and Sunday, according to data compiled by Bloomberg. Pennsylvania Turnpike Commission data shows traffic exceeded projections in each day of the four-day period.

“Average gasoline prices across the U.S. continue to recover as more motorists take back to the roads as states relax previous shelter-in-place orders and begin filling their tanks, driving demand to continue rising,” DeHaan said in a report.

— With assistance by Edward Ludlow

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Top French Chef’s Recipe for the Perfect Steak Haché at Home

Steak haché is not a burger, the purists will tell you. Any resemblance between minced beef molded into a patty in France and that American favorite served in a bun is entirely coincidental. Discuss.

As debates go, that’s about as promising as how many angels can dance on the head of a pin. Eating should be about pleasure and enjoyment and so long as you are a meat eater, steak haché can taste great, however you classify it.

Just ask the three-Michelin-star French chef Pierre Koffmann, who grew up loving steak haché in the 1950s at his family home in Tarbes—in the Gascony province of southwest France—long before he ever tried burgers. 

“We used to have them every Monday,  but they were made with horse meat,” he says. “Only the horse-meat butcher was open on Mondays and my mother would make them. We loved them. Kids love steak haché and, of course, they are cheaper than steaks.

“She’d serve them with salad. In France, there was only one dressing at that time—mustard, oil, salt and vinegar. We had salad with every meal. But you can have them with French fries and they are really good with mashed potato.”

Here, London-based Koffmann shares his recipe. He is very relaxed about the amount of fat in the mince, where British chefs tend to consider 20% the minimum. And he also says it is fine to add mustard or other ingredients into the mix, though he did demur when I mentioned curry powder. I suggested eating the patty between leaves of iceberg lettuce, also not normal practice in Gascony.

The basic recipe is simple, though I did struggle with cooking times, alternately ending up with raw and well-done meat. The times below are the ones decreed by Koffmann after he tested his own recipe for Bloomberg. One tip: Resist the temptation to slide the steak around the pan. If you leave it in the same place, it develops a better crust.

Ingredients (for two burgers):
300 grams (11 ounces) of minced meat
One medium onion finely chopped
20 grams of butter
One clove of garlic
Two egg yolks
Salt and pepper

Cooking:

Richard Vines is Chief Food Critic at Bloomberg. Follow  him on Twitter @richardvines and Instagram @richard.vines.

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The 20 Minutes That Broke the U.S. Oil Market

It was evident from the very beginning on April 20 that the oil market was headed for trouble.

Frantic sell orders had been pouring in overnight and any traders who connected to the Nymex platform that morning could see a bloodbath was coming. By 7 a.m. in New York, the price on a key futures contract — West Texas Intermediate for May delivery — was already down 28% to $13.07 a barrel.

Thousands of miles away, in the Chinese metropolis of Shenzhen, a 26-year-old named A’Xiang Chen watched events unfold on her phone in stunned disbelief. A few weeks earlier, she and and her boyfriend had sunk their entire nest egg of about $10,000 into a product that the state-run Bank of China dubbed Yuan You Bao, or Crude Oil Treasure.

As the night wore on, A’Xiang began preparing to lose it all. At 10 p.m. in Shenzhen — 10 a.m. in New York — she checked her phone one last time before heading to bed. The price was now $11. Half their savings had been wiped out.

As the couple slept, the rout deepened. The price set new low after new low in rapid-fire succession: the lowest since the Asian financial crisis of the 1990s, the lowest since the oil crises of the 1970s, the first time ever below zero.

And then, in a 20-minute span that ranks among the most extraordinary in the history of financial markets, the price cratered to a level that few, if any, thought conceivable. Around the world, Saudi princes and Texan wildcatters and Russian oligarchs looked on with horror as the world’s most important commodity closed the trading day at a price of minus $37.63. That’s what you’d have to pay someone to take a barrel off your hands.

Many things about the explosive, flash-crash-like nature of the sell-off are still not fully understood, including how big a role the Crude Oil Treasure fund played as it sought to get out of the May contracts hours before they expired (and which other investors found themselves in the same position). What is clear, though, is that the day marked the culmination of the oil market’s most devastating crisis in a generation, the result of demand drying up as governments around the world locked down their economies in an attempt to manage the coronavirus pandemic.

For the petroleum industry, it was a grimly symbolic moment: The fossil fuel that helped to build the modern world, so prized it became known as “black gold,” was now not an asset but a liability.

“It was mind-bending,” said Keith Kelly, a managing director at the energy group of Compagnie Financiere Tradition SA, a leading broker. “Are you seeing what you think you’re seeing? Are your eyes playing tricks on you?”

U.S. ETF Pain

While the deeply negative prices of that Monday were largely limited to the U.S., and in particular the soon-to-expire WTI contract for May delivery, the world felt the shockwaves, with ripple effects dragging global prices to the lowest since the late 1990s.

Traders are still piecing together the confluence of factors that led to the collapse. And regulators are scrutinizing the issue, according to people familiar with the matter.

For small-time investors in Asia like A’Xiang who bet enthusiastically on oil, though, it has been a reckoning.

She awoke to a text at 6 a.m. from Bank of China informing her that not only had their savings been lost but that she and her boyfriend may actually owe money.

“When we saw the oil price start plunging, we were prepared that our money may be all gone,” she said. They hadn’t understood, she said, what they were getting into. “It didn’t occur to us that we had to pay attention to the overseas futures price and the whole concept of contract rolling.”

In all, there were some 3,700 retail investors in Bank of China’s Crude Oil Treasure fund. Collectively, they lost $85 million.

Soon, events would catch up with mom-and-pop American investors who had made much the same bet as A’Xiang — that oil had to go back up — by buying the United States Oil Fund, an exchange-traded fund known as USO.

That fund, into which investors poured $1.6 billion the previous week, hadn’t been holding the May WTI contract on Monday. But the rout sparked a chain reaction in the market that burned these investors, too.

The day’s events were set in motion more than two weeks earlier, with the pandemic shattering economies and stalling demand for oil: flights were grounded; traffic jams disappeared; factories ground to a halt.

The below-zero price scenario was, in some corners of the market, starting to be considered. On April 8, a Wednesday, CME Group Inc, which owns the oil-futures exchange, advised clients that it was “ready to handle the situation of negative underlying prices in major energy contracts.”

That weekend, producing nations led by Saudi Arabia and Russia finalized their response to the crisis: a deal to slash production by 9.7 million barrels a day, amounting to a tenth of global production. That wouldn’t be nearly enough. Refineries started shutting down. Buyers for cargoes of oil for immediate delivery in physical markets disappeared.

Futures prices remained, for a while, relatively steady.

That was in part thanks to folks like A’Xiang. In China, investors large and small were betting on higher commodity prices, believing the world would overcome the virus and that demand would bounce back. Bank of China branches posted ads on Wechat, showing an image of golden barrels of oil under the title “Crude oil is cheaper than water”.

Yet on April 15, CME offered clients the ability to test their systems to prepare for negativity. That’s when the market really woke up to the idea that this could actually happen, said Clay Davis, a principal at Verano Energy Trading LP in Houston.

“That’s when the dam broke,” he said.

Physical Delivery

By the time Monday April 20 rolled around, most ETFs and other investment products — though not the Crude Oil Treasure fund — had shifted their position out of the May WTI contract into the next month.

Futures contracts are settled by physical delivery, and if you happen to get stuck with one when it expires, you become the owner of 1,000 barrels of crude. Rarely does it come to that.

But now it was.

The physical settlement for the benchmark WTI takes place at Cushing, Oklahoma. When storage tanks there fill up, the price on the expiring contract can plunge and become disconnected from the global market. With demand evaporating, inventories at Cushing were soaring. In March and April, they climbed 60% to just under 60 million barrels, out of a total working capacity of 76 million –- and analysts reckon much of the remaining space is already earmarked.

So on the crucial Monday, the penultimate day of trading in the May WTI contract, there were precious few traders able or willing to take physical delivery.

Much of the market was focused then on the settlement price, determined at 2:30 p.m. in New York. Investment products –- including Bank of China’s –- typically seek to achieve the settlement price. That often involves so called trading-at-settlement contracts, which allow oil traders to buy or sell contracts ahead of time for whatever the settlement price happens to be.

No Buyers

On that afternoon, with trading volumes thin and sellers outnumbering buyers, the trading-at-settlement contracts quickly moved to the maximum discount allowed, of 10 cents per barrel. For a period of around an hour, from 1:12 p.m. until 2:17 p.m., trading in these contracts all but dried up. There were no buyers.

The result was the carnage of that afternoon. At 2:08 p.m., WTI turned negative. And then, minutes later, sank to as low as minus $40.32 before rebounding slightly at the close.

“The trading at settlement mechanism failed,” said David Greenberg, president of Sterling Commodities and a former member of the board at Nymex. “It shows the fragility of the WTI market, which is not as big as people think.”

Prices in the U.S. physical market, set by reference to the WTI settlement, also plunged, with some refiners and pipeline companies posting prices to their suppliers as low as minus $54 a barrel.

Bank of China’s investment product offers an explanation of why the move below zero was so dangerous. The bank had demanded investors like A’Xiang put up the entire cost of what they were buying in advance. That meant the bank’s position looked risk-free.

But not if prices dropped below zero: then there wouldn’t be enough money in the investors’ accounts to cover the losses.

The bank had a total position of about 1.4 million barrels of oil, or 1,400 contracts, according to a person familiar with the matter. It wound up having to pay about 400 million yuan ($56 million) to settle the contracts.

Across the investing world, others were faced with similar risks. ETFs could be bankrupted if the price of the contracts they held went below zero. Facing that possibility, they shifted a large chunk of holdings into later delivery months. Some brokers barred clients from opening new positions in the June contract.

The moves amounted to a new wave of selling that swept across oil markets. On Tuesday, the June WTI contract plunged by 68% to a low of just $6.50. And this time it was not limited to U.S. contracts: Brent futures also plunged, hitting a 20-year low of $15.98 on Wednesday, driving the price of Russian, Middle Eastern and West African oil that is priced relative to it to levels near zero.

CFTC’s Top Priority

Harold Hamm, chairman of Continental Resources Inc., called for an investigation, saying that the dramatic plunge in the last minutes of Monday “strongly raises the suspicion of market manipulation or a flawed new computer model.”

Within the Commodity Futures Trading Commission, unpacking what occurred during those final minutes of trading on April 20 has since become top priority, according to people familiar with the matter. While reviews and investigations into what occurred are just beginning, thus far, top officials believe the moves were likely the result of a confluence of economic and market factors, rather than the result of market manipulation.

An issue the CFTC is exploring is whether the storage capacity data posted by the U.S. Energy Information Administration accurately reflected the actual availability of space, two of the people said.

“The temporarily negative price at which the WTI Crude futures contract traded earlier this week appears to be rooted in fundamental supply and demand challenges alongside the particular features of that futures product,” CFTC Chairman Heath Tarbert told Bloomberg News.

Nonetheless, he added: “CFTC is conducting a deep dive to understand why the WTI price moved with the velocity and magnitude observed, and we will continue to oversee our markets’ role in facilitating convergence between spot and futures prices at expiration.”

The CME, for its part, argues that Monday’s plunge was a demonstration of the market working efficiently. “The markets worked exactly how they’re supposed to do,” CEO Terry Duffy told CNBC. “If Hamm or any other commercials believe that the price should be above zero, why would they have not stood in there and taken every single barrel of oil if it was worth something more? The true answer is it wasn’t at that given moment in time.”

Whoever is right, the events of the week have changed the oil market forever.

“We witnessed history,” said Tamas Varga, an analyst at brokerage PVM. “For the sake of oil-market stability,” this “should not be allowed to happen again.”

— With assistance by Jack Farchy, Catherine Ngai, Benjamin Bain, Alex Longley, Matthew Leising, Alfred Cang, Katherine Greifeld, and Sarah Chen

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World’s Biggest Oil Storage Firm Says Almost All Space Sold

The world’s biggest independent oil storage company said that space for traders to store crude and refined fuels has all but run out as a result of the fast-expanding glut that Covid-19 has created.

“The available capacity on the oil side is almost completely sold out for our terminals,” Gerard Paulides, the chief financial officer of Rotterdam-based Royal Vopak NV, said in an interview. “For Vopak, worldwide available capacity that is not in maintenance is almost all gone and from what I hear elsewhere in the world we’re not the only ones.”

The firm is racing to complete maintenance to free up whatever space it can. Worldwide oil demand has collapsed at an unprecedented speed because the coronavirus has caused a mass halt to global transportation systems and hurt economies. With producers failing to reduce output at the same pace, an oversupply of crude and fuels has quickly emerged.

U.S. crude oil futures for May moved into negative territory on Monday — meaning traders were effectively willing to pay people to take barrels. A large part of that was because of concerns about space to store.

From Indonesia to Mexico, companies are scouring the market for places to store oil and refined fuels, often parking unwanted supplies on tankers because shore-based facilities are full. In the North Sea, a handful of vessels have been idling with gasoline and jet fuel on board for days now.

“It’s extremely tough to find something in this market,” said Krien van Beek, a storage broker at ODIN-RVB Tank Storage Solutions, discussing the global situation for fuels. Companies that have their own tanks may not have filled them, but there are now barely any left for third-party hire, she said.

Main Hubs

Vopak operates three main hubs worldwide in Singapore, Rotterdam and Fujairah. The company traditionally benefits from contango in oil and fuel markets where the spot price is depressed, meaning oil can be stored for sale later at a higher price. The company said in its earnings release today that the impact of contango will certainly be seen in the second quarter. Vopak is working at a fast pace to bring back from maintenance four tanks in Rotterdam.

“All the available capacity that is in demand will be used and is used,” Paulides said.

The diesel, jet fuel and gasoline markets are all in sharp contangos in Europe, the U.S. and Asia Pacific. Jet and gasoline have both suffered massive demand losses, and diesel buying has also been hit, despite its uses beyond consumer transport.

The strain on storage is also starting to create some weird shipping movements as traders send tankers on odysseys to find the best places to stash supplies.

Two tankers that were hauling cargoes of diesel-type fuel to Europe from India have now changed course and are sailing for New York, where there’s more storage available, according to two people involved in the market. At least one jet fuel tanker that had earlier signaled Europe has also diverted to the U.S.

“Under pressure is probably putting it mildly,” said Steve Sawyer, director of refining at Facts Global Energy, describing the global situation for fuels storage. “We’re probably close to filling up.”

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Oil Spirals Below Zero in ‘Devastating Day’ for Global Industry

The day started like any other gloomy Monday in the oil market’s worst crisis in a generation. It ended with prices falling below zero, thrusting markets into a parallel universe where traders were willing to pay $40 a barrel just to get somebody to take crude off their hands.

West Texas Intermediate futures have been the benchmark for America’s oil industry for decades, seeing the market through booms, busts, wars and financial crises, but no single event holds a candle to this. By the end of trading, the contract had slumped from $17.85 a barrel to minus $37.63.

”Today was a devastating day for the global oil industry,” said Doug King, a hedge fund investor who co-founded the Merchant Commodity Fund. “U.S. storage is full or committed and some unfortunate market participants were carried out.”

In one way, it was just an extreme glitch as traders prepared for the expiry of the contract for delivery in May. Elsewhere, the market proceeded as normal — Brent futures, the benchmark for Europe in London, ended the day down sharply, but still above $25 a barrel. WTI for June delivery changed hands at $21 a barrel.

But the negative prices also revealed a fundamental truth about the oil market in the age of coronavirus: The world’s most important commodity is quickly losing all value as chronic oversupply overwhelms the world’s crude tanks, pipelines and supertankers. Ultimately, traders were left desperate to avoid having to take delivery of actual oil because nobody needs it and there are fewer and fewer places to put it.

Global Accord

Despite the OPEC+ deal to cut 10% of global production, lauded by U.S. President Donald Trump little more than a week ago, the oil market’s crisis is worsening. The rout will send a deflationary wave through the global economy, complicating the task facing central banks trying to keep economies afloat as the pandemic continues to paralyze business and travel worldwide.

The price collapse could redraw the global map of power as petrostates like Russia and Saudi Arabia, which enjoyed a resurgence over the last 20 years thanks to an oil windfall, see their influence diminished. Exxon Mobil Corp., Royal Dutch Shell Plc and other oil giants are ripping up business plans, desperate to preserve cash.

Read More: Negative Prices for Oil? Here’s What That Means: QuickTake

WTI is the world’s most traded financial oil contract, a benchmark followed from Zurich to New York to Tokyo. But when each month a futures contract nears expiry and traders roll their positions into further-out contracts, the real, physical world of WTI becomes very small — centered on Cushing, an oil town in Oklahoma where a massive hub of pipelines and storage tanks serves as the actual delivery point for barrels.

In the past three weeks, crude has been flowing into Cushing at a breakneck speed, averaging 745,000 barrels a day and taking in more oil than a medium-sized European nation like Belgium consumes. At that rate, the tanks there will be full before the end of May, something that has never happened before.

ETF Fever

The days before expiry are often volatile as traders make the shift from a paper to a physical market. Until a few days ago, the May contract had been supported by huge financial flows by retail and institutional investors pouring money into oil through exchange-traded funds.

The largest crude ETF, known as the U.S. Oil Fund, received billions of dollars in fresh funds in recent weeks, accumulating a fifth of all the outstanding contracts in the May futures contract. But last week, it rolled its position into the June contract, and evaporated from May. Without the fund, the contract was abandoned to the the forces of physical supply and demand.

As the market opened early in Asia’s Monday morning, the May contract traded at $17.85. As New York traders were firing up workstations in their makeshift home offices, it was below $15.

Then prices really started to slide, making history all the way down. By 8 a.m. New York time, the decline had reached 37%, the biggest intraday drop since the futures started trading in 1982. At around 11 a.m., it passed the low of $10.35 set in the oil bust of 1998. About an hour later, it took out $10 a barrel.

‘Not a Single Bid’

When CME Group Inc., which runs the exchange where WTI futures trade, said prices would be allowed to go negative, the selling accelerated. By 1:50 p.m. the contract was below $1 a barrel. Less than 20 minutes later, prices went below zero for the first time and just kept falling.

“No bids. Mental!,” said one trader at a top merchant in a vain attempt to explain the collapse as prices went negative. “No bids; not a single bid,” said another one in London. “Ridiculous,” said a third senior trader in Geneva.

The contract settled at minus $37.63, a drop of $55.90. And there’s still another day of trading to come before it finally expires.

$4.3 Billion ETF Sour Amid Oil Plunge (3)” target=”_blank”>Read More: Bottom-Calling Bets on $4.3 Billion ETF Sour Amid Oil Plunge (3)

“The May crude oil contract is going out not with a whimper, but a primal scream,” said Daniel Yergin, a Pulitzer Prize-winning oil historian and vice chairman of the research and information company IHS Markit Ltd.

Even discounting the oddity of the May contract’s plunge into negative prices, the world of physical oil suggests widespread pain.

Many refineries and pipeline companies told producers on Monday that they would only take their oil if they were paid. The daily price bulletin from Enterprise Products Partners LP, one of America’s largest pipeline companies, showed negative prices for all of the crude it buys. Another giant, Plains All American Pipeline LP, told producers the same.

Bob McNally, a consultant and oil historian, said the energy market was getting “reacquainted with how the price mechanism for oil works” — and why “for most of oil history, the industry and governments strive to stabilize prices through supply control, be it a tolerated cartel, government regulation, or both.”

The OPEC+ coalition of oil producing countries has failed to stop the rout. Saudi Arabia, Russia and other producers announced a week ago an historic deal to cut global production by nearly a tenth, or 9.7 million barrels a day, from May. The U.S., Canada, Brazil and others have said their own production is also falling as companies stop drilling new wells.

For Trump, who personally brokered the OPEC+ deal, negative prices means more trouble in the U.S. oil patc

h. Pressure is building within the Republican party to use trade barriers to save the shale industry, including placing tariffs on foreign oil.

But the market — negative prices and all — isn’t waiting for OPEC to cut production, or for tariffs to slow imports. Rather than being an isolated event, Monday’s unprecedented oil market plunge serves as a warning of more pain to come.

“If global storage worsens more quickly,” veteran Citigroup oil analyst Ed Morse said, “Brent could chase WTI down to the bottom.”

— With assistance by Catherine Ngai, and Alex Longley

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Negative Prices for Oil? Here’s What That Means

Stores never pay shoppers to take their goods away, but in extreme circumstances some businesses do, though generally in a very limited way. What’s happened in the oil market, however, was a massive and unprecedented negative swing, as the price on some futures contracts for West Texas crude fell to minus $37.63 a barrel. A collapse in petroleum demand from pandemic-driven lockdowns, a price war among the world’s largest producers that flooded the market, storage facilities nearing their capacities and the monthly rhythms of the futures market all played a role in the jaw-dropping development.

1. Why would a seller pay a buyer to take their oil?

For some producers, it may be cheaper in the long run than shutting down production or finding a place to store the supply bubbling out of the ground. Many worry that shutting their wells might damage them permanently, rendering them uneconomical in the future. There are also traders who buy oil futures contracts as a way of betting on price movements who have no intention of taking delivery of barrels. They can get caught by sharp price drops and face the choice of finding storage or selling at a loss. And the escalating glut of oil has made storage space scarce, and increasingly expensive.

2. Where did the glut come from?

Either the pandemic or the price war by itself would have rocked the energy markets. Together they have turned them upside down. As the virus began to spread around the globe, it began eating away at oil demand in stages. But just as countries like Italy showed what kind of damage a national lockdown could do economically, Saudia Arabia and Russia, the world’s biggest oil producers, butted heads. A pact that had restrained production collapsed and both countries opened their taps to the fullest, releasing record volumes of crude into the market.

3. Wasn’t there a deal on that?

Yes, one worked out by OPEC, Russia, the U.S. and the Group of 20 countries. But its call for an overall production cut of roughly 10% proved to be too little, too late. Prices initially turned negative just in obscure corners of the U.S. market such as Wyoming, where storage options are few. Then major hubs began to register negative prices for small streams of selected crudes. And on April 20, prices fell sharply below zero on CME, the world’s largest energy market, as well as NYMEX.

4. What did futures contracts have to do with that?

The lowest prices came in trades in futures — contracts in which a buyer locks in a purchase at a stated price at a stated time. Futures are a tool for users of oil to hedge against price swings, but also a means of speculation. The contracts run for a set period, and traders who don’t want to unwind their position or take delivery generally roll over their contracts shortly before expiration. Contracts for May delivery were due to expire on April 21, putting maximum pressure the day before on traders whose contracts were coming due. For them, selling at a steeply negative price was better than filling bathtubs with oil, though the market rout was such that the physical domestic crude market did see trades on an outright basis for grades like WTI in Midland, Mars Blend, Light and Heavy Louisiana Sweet crudes at negative levels.

6. What happened to storage?

Since the glut began to build and prices began to fall, storage facilities have been moving toward capacity. Crude stockpiles at Cushing in Oklahoma– America’s key storage hub and delivery point of the West Texas Intermediate contract — have jumped 48% to almost 55 million barrels since the end of February. The hub had working storage capacity of 76 million as of Sept. 30, according to the Energy Information Administration. The industry has been accumulating supply aboard ships, while contemplating other creative options such as storing oil aboard rail tankers. The Trump Administration, which is concerned about the possible ripple effect from oil bankruptcies, is eyeing a proposal, which is still in its infancy, to pay oil drillers to keep their oil in the ground temporarily. The idea would be to keep it off the market until prices recovered, giving the Treasury a healthy profit while protecting producers from immediate losses.

7. What does this mean for consumers?

Nationwide, the average gasoline price is down more than $1 a gallon in the past year to $1.81. It’s fallen every day since late February. It’ll take a couple more weeks for the declines in futures prices to be reflected at the pump. And with taxes making up part of the price, there’s only so low they can go.

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Trump Says Oil Prices May Be Too Low and He’s Calling Putin

President Donald Trump said he’s concerned oil prices have fallen too far and that he would call Vladimir Putin on Monday to discuss Russia’s oil-price war with Saudi Arabia and the global response to the coronavirus pandemic.

The U.S. president said he does not want to see the energy sector “wiped out” after Russia and Saudi Arabia “both went crazy” and launched into a conflict that depressed oil prices.

“I never thought I’d be saying that maybe we have to have an oil increase, because we do. The price is so low,” Trump said in an interview on “Fox & Friends.”

Oil briefly recovered some losses. West Texas Intermediate crude traded near the lows of the day at $20.15 a barrel as of 9:51 a.m. in New York, after bouncing as high as $20.71.

Trump’s view on the the dispute marks a shift from earlier this month, when he likened the plunge in oil prices to a “tax cut” for Americans. The U.S. president spoke to Saudi Crown Prince Mohammad bin Salman on March 9 about the dispute.

Trump has long argued that improving relations between Washington and Moscow could help solve international disputes. The president said he wanted to discuss trade with Putin, though he said he expected the Russian president to raise objections to U.S. sanctions. Trump also said they’d discuss the coronavirus outbreak.

“Russia’s got a big problem with that too, with the virus, so we’ll be talking about that, but literally that’s my next call,” Trump said.

Oil tumbled earlier to its lowest point in nearly two decades, heading for the worst quarter on record as coronavirus lockdowns cascaded through the world’s largest economies, leaving the market overwhelmed by cratering demand and a ballooning surplus. The slump in demand has shut refineries from South Africa to Canada.

Goldman Sachs Group Inc. estimates consumption will drop by 26 million barrels a day this week. Meanwhile, Riyadh and Moscow are showing no signs of a detente in their supply battle as Saudi Arabia announced plans to increase its oil exports in the coming months, despite U.S. warnings against flooding the market.

Some analysts argue Russia’s motivations extend well beyond oil and are complicated by the federation’s anger over U.S. sanctions and opposition to Nord Stream 2 pipeline linking Russia to Germany. And the price for getting Russia to back down could be too high.

“Russia’s concerns with the U.S. go beyond market share. Putin is frustrated with sanctions and may be more interested in punishing the U.S. than Saudi Arabia,” said Dan Eberhart, a Trump donor and chief executive of drilling services company Canary LLC. “If Trump wants an agreement with Putin, he may have to promise to ease up on sanctions. I am not sure he can deliver without the backing of congress.”

Rosneft PJSC over the weekend sold its assets in Venezuela to the Russian government, a move that shields the Russian oil giant from further U.S. sanctions while keeping Moscow behind the regime of Nicolas Maduro. Fears of broader sanctions have grown after the U.S. in recent months slapped restrictions on Rosneft trading companies for handling business with Venezuela.

Talks between members of the Organization of Petroleum Exporting Countries and its allies broke down in early March as Russia refused to sign on to larger production cuts proposed by Saudi Arabia. The failure to reach an agreement prompted the Saudis to unleash a price war which, combined with the devastating effect of the virus pandemic, caused the market to crash.

Global demand is slumping by as much as 20 million barrels a day, about 20%, as billions of people go into lockdown to slow the spread of the virus. The outlook remains dire, with traders, banks and analysts forecasting a huge oversupply as governments effectively shut their economies.

Oil industry leaders, trade groups and some Republican senators have pressed the Trump administration to seek a diplomatic solution with Saudi Arabia. Six senators from oil-producing states last week urged Secretary of State Michael Pompeo to take a tougher stance against Saudi Arabia, while highlighting several “powerful tools at our disposal,” including sanctions, tariffs and other trade restrictions.

“Trump would have better success pressing Saudi Arabia than Russia since they are dependent on the U.S. for protection, intelligence and arms sales,” Eberhart said.

— With assistance by Josh Wingrove, and Javier Blas

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