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Trump's Tweets Send Oil Stocks Screaming Higher Today

By Matthew DiLallo - Apr 2, 2020 at 1:43PM

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The president says Russia and Saudi Arabia are about to put an end to their price war.

What happened

Oil prices scorched higher on Thursday with WTI, the U.S. oil benchmark, rallying 22% by 11:30 a.m. EDT, pushing it up close to $25 a barrel. That rally in the energy market sent oil stocks soaring, with several surging double digits. Among those leading the charge higher were Apache (APA 2.80%)Cenovus Energy (CVE 4.04%)Diamondback Energy (FANG 3.92%)Murphy Oil (MUR 4.01%)Parsley Energy (PE), and WPX Energy (WPX)

So what

The main factors fueling a rally in the oil market were some tweets by President Trump that Russia and Saudi Arabia were about to end their oil price war. President Trump tweeted this morning that he had just spoken with Saudi Arabia's crown prince, who he said recently had discussions with President Vladimir Putin of Russia, which led President Trump to believe they'd cut production by at least 10 million barrels per day.

He followed that one up a few minutes later by tweeting that the reduction could be as much as 15 million barrels per day. This declaration follows a similar one made by the president at his COVID-19 press briefing on Wednesday, where he said: "I have confidence in both that they'll be able to work it out." 

An offshore oil production platform at sunset.

Image source: Getty Images.

There were, however, conflicting news reports on the likelihood of an agreement. A Russian news agency said that there were no conversations between Putin and Saudi's crown prince. Reuters, on the other hand, reported that Saudi Arabia called for an emergency meeting of OPEC and its allies.

If Russia and Saudi Arabia agree to a cease-fire, it will help stabilize the oil market, which has been devastated by dual shocks to supply and demand. There's so much excess oil these days that the industry is running out of places to store it. That's causing concerns that oil could go even lower, which would put even more pressure on the finances of producers.

In addition to President Trump's market-moving tweets, there were several company-specific catalysts that were helping oil stocks today. Cenovus Energy cut its planned capital spending program for the second time this year, pushing it 43% below 2019's level. Cenovus also suspended its dividend (which it based on oil averaging $45 a barrel this year), cut the salaries of several of its senior executives, and plans to further reduce operating costs. These moves will help it survive the oil market slump. 

Murphy Oil made some similar moves. It cut its dividend by 50%, reduced its capital spending by another 18% (pushing it 46% below its initial budget), and reduced the salaries of several senior executives. 

Meanwhile, Apache is moving higher today for a different reason. The company and its partner, French oil giant Total, reported a significant offshore oil find near Suriname. It's their second discovery off the coast of the South American country this year. But given the current state of the oil market, and Apache's finances, it's unclear if these partners will ever develop those discoveries. 

Now what

Oil prices are rallying on the hope that President Trump is right that Russia and Saudi Arabia will not only end their price war but also enact a substantial reduction in their oil supplies to combat the massive decline in demand from COVID-19.

But even if they do, that won't push oil prices back up to the levels that most U.S. producers require to stay solvent, which is $40 to $50 a barrel. That's because the industry has so much excess supply that it will take quite a while to burn it off, since demand likely won't bounce right back even after governments get COVID-19 under control.

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Stocks Mentioned

Murphy Oil Corporation Stock Quote
Murphy Oil Corporation
MUR
$33.23 (4.01%) $1.28
Apache Corporation Stock Quote
Apache Corporation
APA
$37.47 (2.80%) $1.02
Cenovus Energy Inc. Stock Quote
Cenovus Energy Inc.
CVE
$19.59 (4.04%) $0.76
Diamondback Energy, Inc. Stock Quote
Diamondback Energy, Inc.
FANG
$124.39 (3.92%) $4.69
WPX Energy, Inc. Stock Quote
WPX Energy, Inc.
WPX
Parsley Energy, Inc. Stock Quote
Parsley Energy, Inc.
PE

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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