Global oil prices extended gains Thursday, lifting benchmark crude past $22 a barrel, after Iran vowed a 'crushing response' to threats from President Donald Trump as tensions in the Gulf region continue to escalate.
Iran's top military figure, Revolutionary Guard Commander Hossein Salami, told state television Thursday that his country's navy would "destroy" any U.S. warship that threatens its security. The comments followed a threat from President Trump Wednesday to "shoot down" any Iranian ship that 'harasses" an American vessel.
"The President issued an important warning to the Iranians, what he was emphasizing is that all of our ships retain the right of self-defense," Deputy Defense Secretary Norquist told reporters Wednesday. "The president is describing and responding to poor behavior of the Iranians."
The President's warning followed U.S. allegations that 11 Iranian Military Guard has made "dangerous and provocative" moves towards U.S. Navy and Coast Guard vessels in the Gulf earlier this month, and" repeatedly crossed the bows and sterns" of American ships, including an incursion that came within 10 yards of the Maui, a U.S. Coast Guard cutter.
Brent crude futures contracts for June delivery, the benchmark reference for around 60% of global crude purchases, jumped $1.73 per barrel, or 8.5%, from last night's close following to change hands at $22.10 each heading into the end of the session, after trading as low as $15.98 per barrel -- a 1999 trough -- in early European dealing.
WTI crude futures for June delivery, meanwhile, rose 24% to $17.04 per barrel as investors who sold out of Wednesday's expiring May contract jumped into the new U.S. benchmark.
The two-day rally, however, comes not only amid an historic collapse in factory activity around the world, as measured by record-low PMI data from Japan and Great Britain, but also follows data showing another 15 million barrel increase in U.S. crude stocks last week, the fourth week of 10 million barrel-plus gains and a figure which underscores the extent of over supply in the global market.
"Given the glut we have in the oil market, it is difficult to see this offering lasting support to the market, unless the situation does escalate further,' said ING's head of commodity strategy Warren Patterson, who noted that inventory levels in the main U.S. delivery hub of Cushing, Oklahoma, are nearing their 77 million barrel capacity.
"Assuming similar increases moving forward, inventories in Cushing should reach capacity sometime during the first half of May, increasing the risk of further downward pressure on WTI prices." he cautioned.
Trump's Wednesday Tweet followed several attempts to support oil markets -- and the U.S. energy industry -- amid a collapse in global crude prices to multi-decade lows earlier in the week.
"We will never let the great U.S. Oil & Gas Industry down. I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!,", the President Tweeted Tuesday.
Last Friday, oil services group Baker Hughes said U.S. drillers pulled 66 rigs from operation, the biggest decline since February 2015 and capping a one-month period during which some 35% of capacity has been taken offline amid signals of a cliff-edge decline in global demand.
The International Energy Agency, in fact, has forecast the steepest decline in global demand on record as the coronavirus pandemic shutters the world economy.
That followed last week's agreement among OPEC member states, as well as non-member allies such as Russia, to cut their collective production by 9.7 million barrels per day, with the U.S., Canada and Brazil contributing 3.7 million barrels per day.