Oil, gas and mining

Would rather buy oil producers themselves than trust the commodity futures contract or ETF: Stutland

Brian Stutland of Equity Armor Investments discusses the complexities of trading directly in the commodities market, especially with ETFs that track oil futures contracts.

Oil prices jumped nearly 30% on Wednesday following a report that showed a smaller-than-expected build in U.S. inventories, as well as on the hope that economies will reopen sooner than expected.

West Texas Intermediate for June delivery surged 29%, or $3.59, to trade at $15.96 per barrel, while international benchmark Brent crude traded 10.9% higher at $22.69.

Optimism that economies will be able to re-open ahead of schedule rose after Gilead said early results of its coronavirus drug trial showed that at least 50% of patients treated with a five-day dosage of antiviral drug remdesivir improved and more than half were discharged from the hospital within two weeks.

Stocks rose following the news, despite a 4.8% contraction for U.S. GDP in the first quarter — the largest contraction since the financial crisis.

Oil prices also got a boost on a smaller-than-expected build in U.S. inventories. According to data from the U.S. Energy Information Administration, crude stockpiles rose by 9 million barrels for the week ending April 24. This was lower than the 11.7 million barrel build analysts polled by FactSet had been expecting.

The data also showed that U.S. production fell by 100,000 barrels per day last week to 12.1 million bpd. This is 1 million bpd below the record 13.1 million bpd production set during the week ending March 13.

“Oil prices rose on Wednesday morning as traders cling to potentially positive indications that the demand-supply gap may somewhat become smaller soon,” Rystad Energy’s global head of oil markets Bjornar Tonhaugen told CNBC.

“Overall we need official announcements for cuts or economies reopening for prices to stabilize. Expect a lot of volatility and price swings either way in coming days as bullish and bearish traders weigh their hopes and fears in a market that is desperate to find something to hang on,” he added.

Oil prices swayed wildly on Tuesday between gains and losses as investors continue to keep an eye on depleting crude storage space amid a dearth in demand. The coronavirus pandemic, which has forced countries around the world to shut their economies temporarily as people are told to stay home, has reduced global demand for crude by as much as a third, according to some estimates.

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