Oil prices halted, however briefly, their headlong plunge this morning, possibly helped by official buying by the US government.
But the general momentum remains strongly downwards as estimates for oil demand are slashed in the light of the feared effects of the coronavirus epidemic and more general worries about an economic slowdown.
Emergency is declared
One factor putting a spark of life to prices may be President Donald Trump’s instruction to the Department of Energy on Friday to go into the market to beef up America’s Strategic Petroleum Reserve. Buying will have started in earnest this week, so that may be buoying the price.
Department spokeswoman Shaylyn Hynes said: “This afternoon, President Trump declared a National Emergency concerning COVID-19 [coronavirus], and directed Secretary [Dan] Brouillette to purchase oil for storage in the Strategic Petroleum Reserve to provide relief to the American energy industry.
Trade Brent Crude Oil Spot CFD
“This evening, the Secretary issued a memo to assistant secretary for Fossil Energy, Steven Winberg, to immediately initiate an expedited process for this purchase of crude oil owned and produced in the United States.”
She added that the department was working on a “solicitation for the purchase of oil” – in other words an invitation for oil producers to tender for the government’s business.
Perhaps unnecessarily, given Mr Brouillette works for Mr Trump, she said the Energy Secretary “applauds the President’s continued bold and decisive action to combat the worldwide impacts of COVID-19”.
The Strategic Petroleum Reserve was set up in the wake of the 1973 energy crisis, when oil supplies from the Middle East to the west were seriously interrupted, prices shot up and a recession ensued.
Whatever support the oil price may be enjoying from the additional American buying, it remains very close to 12-monthly lows. The chart shows a punishing downward momentum that has gained force during this year so far.
One month ago, Brent traded at $57.67 on 17 February and WTI stood at $52.31. Three months ago, on 17 December, Brent changed hands at $66.10, while WTI traded at $60.94.
Going back to early last year, Brent was worth $67.54 on 18 March while WTI stood at $59.41 on 27 March.
Elsewhere, the 13-nation oil cartel, the Organisation of Petroleum Exporting Countries (OPEC), and the global forum the International Energy Agency (IEA) have held talks about the impact of coronavirus on the industry. OPEC said that both organisations “underscored the importance of market stability, as the impact of extreme volatility is felt by producers, particularly in terms of much needed income, and by both producers and consumers, who are affected by an unstable and unpredictable market”.