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- US oil prices have recovered with West Texas Intermediate trading just above $17 barrel as of 09:15 EST on Friday.
- International prices recovered, however, following President Trump’s comments that he ordered the US Navy to “shoot down” Iranian gunboats if they harassed American ships at sea.
- WTI prices have been highly volatile over the past week due to a lack of demand and storage space, particularly in Cushing, Oklahoma.
- Markets Insider spoke with analysts to ask how the US oil market can prevent further volatility.
- Track the price of oil live with Markets Insider.
- Visit Business Insider’s homepage for more stories.
When oil markets suffer, a tweet by US President Donald Trump can make all the difference.Â
Oil prices recovered this week from historical lows following a tweet by Trump on Wednesday instructing the US Navy to “shoot down any and all Iranian gunboats” if they harass US ships at sea.Â
Prices for the commodity had turned negative for the first time in history on Monday, hitting a low of -$40.32 a barrel. Meanwhile, international oil prices plunged to a two-decade low.Â
Lack of storage options, particularly at a key storage facility in Cushing, Oklahoma, and the reduction in demand for the commodity during the ongoing coronavirus pandemic, have both contributed to WTI’s historic price crash.
Prices are stable since, but analysts think the oil market is still prone to further volatility.
Markets Insider rounded up some of the most insightful predictions from analysts about how to make oil prices less volatile.Â
Check them out below:
Options trading Will Rhind, founder and chief executive of GraniteShares
“OPEC needs to realize the magnitude of the situation they have not only blundered into, but actively aggravated, and cut production many times over.”
“If not, the US should consider banning petroleum imports and retooling to refine domestic crude production – there is no reason to be bailing out Middle Eastern overproduction.”
Options trading Adam Rozencwajg, managing partner at Goehring & Rozencwajg Associates
“The exchange perhaps could have seen this coming and incentivized the traders to reduce their exposure (raising margin requirements is one way futures exchanges have done this many times in the past). Why it wasn’t done this time is a mystery to me.”
Options trading Frank Lee, managing director for Miracle Mile Advisors’ Institutional Investor division
“The futures market for oil prices does have dynamic circuit breakers to halt trading for a period of time. However, currently, the halt is for a very brief two minutes. Afterward, trading resumes for oil futures contracts.”
“Perhaps a longer halt would help prevent such extreme price moves on oil. But it would also prevent any trading or settlement of positions from occurring, which would resume once trading is open.”
“My suggestion would be to limit the amount of speculators in oil futures contracts to prevent prices moving to such extremes.”
Options trading Greg Taylor, chief investment officer at Purpose Investments
“The biggest question is from a regulation point of view and focuses on how structured ETFs are set up. Before, ETFs got too big for the market. The threat of physical delivery caused a lot of volatility around the contract expiry.”
“The [Securities Exchange Commission] should be looking into how some of these contracts are written, as retail investors could be exposed to these risks.”
Options trading Patrick Healey, founder and president of Caliber Financial Partners
“Removing restrictions that are in place on the nation is really the only solution to stabilize energy prices.”
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“Allowing people to work again, allowing commerce to resume, giving people a reason to start driving again will create the demand that’s necessary to stabilize prices.”
Options trading James Angel, associate professor at Georgetown UniversityÂ
“Daily price limits. Futures markets often limit the daily fluctuations in price. Apparently this did not apply on Monday as the price limits are often lifted just before expiration of the contract to ensure that the price really does converge to the spot price at delivery time.”
“Extended delivery procedures. The exchange could permit delivery at other locations other than Cushing, [Oklahoma] or at different times. This would provide some flexibility and reduce the pressure on Cushing storage and prices.”
“Relax margin requirements. When markets make a large move, margin calls may force liquidations of positions that make the move more extreme than it should be. The exchanges and brokers could relax margin requirements temporarily, but this imposes additional risk on the system.”
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