Trading blows
Volatility has returned both to the oil market and the broader stock market, led in part by increasing fears of a trade war between the U.S. and China.
Volatility has returned to oil prices. A market that is notoriously and historically volatile, oil experienced a relatively steady rise from June 2017 though January. Domestic benchmark West Texas Intermediate crude surged 56 percent over that period, topping out at $66.14 a barrel on Jan. 26.
Over the past two months, however, volatility has returned both to the oil market and the broader stock market, led in part by increasing fears of a trade war between the United States and China.
The oil price also has continued to be affected by relatively steady global oil production and declining storage levels in the United States and worldwide.
The domestic benchmark price gained 17 cents Thursday to close at $63.54. Over the past five weeks, the price has bounced between $59 and $66 a barrel, swinging with the broader market on various reports, including dueling tariff announcements out of Washington and Beijing.
Mixed messages in Cushing
On Wednesday alone, oil prices dipped to a two-week low after China announced tariffs on U.S. exports. By afternoon, the price recovered most of the day's losses after the U.S. Energy Information Administration said the country's crude oil storage levels dipped by 4.6 million barrels in the previous week while most analysts expected a small increase.
Even that storage report included conflicting information. While the nationwide number decreased by 4.6 million barrels, storage at Cushing increased by 3.7 million barrels. Cushing is home to the country's largest commercial storage hub and is the pricing point for the domestic benchmark price.
The global oil price collapsed beginning in late 2016 after domestic production nearly doubled to more than 9 million barrels of oil per day in less than a decade. Saudi Arabia responded by boosting its own production.
Over the past 18 months, Saudi Arabia and the rest of the Organization of Petroleum Exporting Countries have worked with Russia to hold back their production in an attempt to burn through the global excess capacity and strengthen oil prices.
Suhail Al Mazrouei, OPEC president and United Arab Emirates Energy Minister, this week said the effort has removed "85 percent of the problem." Speaking at the Bloomberg Businessweek Middle East conference in Dubai, he said that while a trade war could affect the cost of drilling and completing wells, the overall effect likely will be minor to oil prices.
Decreased storage levels likely will strengthen oil prices, but it also promises to make the market more volatile and increasingly affected by supply disruptions.
In general, oil price volatility is difficult for oil companies and their executives, who set budgets months in advance based on the best estimate of where prices will be as wells become productive. But for some producers, consumers and traders, volatility can be beneficial, allowing them to lock in future prices on days where the price is in their favor.