Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!— Donald J. Trump (@realDonaldTrump) April 2, 2020
Oil prices jumped in response to the president's tweet Thursday, and never looked back. By the time trading was done for the day, West Texas Intermediate crude prices were up 22.4% at nearly $25 a barrel. Brent crude rose nearly as much, up 21.2% at closer to $30.
Oil stocks followed suit, with oil major ConocoPhillips (COP -0.44%) closing the day 14.2% higher. Companies offering alternatives to oil, including on-site fuel cell company Bloom Energy (BE 2.17%) and Ballard Power Systems (BLDP 1.69%), which manufactures fuel cells that power buses and other means of transport, rose as well. Bloom shares jumped 11.2%, and Ballard stock closed up 6.8%, after rising nearly twice that amount earlier in the day.
Much of this reaction can be attributed to the president's tweeted claim that global oil production will be getting dialed down by 10 million barrels a day. (President Trump later revised that to "as high as 15 million barrels.")
It also didn't hurt that there are news reports that China, encouraged by oil prices at multidecade lows and the revival of its economy, is moving to replenish its oil reserves by buying as many as 100 million barrels of oil this year. This expected uptick in demand also helped to push oil prices higher today.
Meanwhile, companies like Bloom and Ballard have to price their offerings at levels competitive with the price of oil. The higher oil prices go, the easier that is to do -- and the greater the attractiveness of (and potential profits for) the fuel cell makers.
That being said, it's necessary to curb some enthusiasm here. On the one hand, yes, more buying by China, and less production by Russia and Saudi Arabia, would all be incremental positives for oil prices, for oil companies, and for the renewable energy companies that compete with them.
And yet the bigger story of the nascent recession and the growing problem of coronavirus-created unemployment will outweigh these positives.
Bank of America warned today that the recession we're heading into "appears to be deeper and more prolonged than we were led to believe just 14 days ago when we last updated our forecasts, not just in the U.S. but globally as well." Recessions aren't generally good news for oil demand, but even if we weren't in one, the 10 million jobs lost in the U.S. alone over the past two weeks (and millions more jobs turned into work-from-home positions that don't require commuting) are going to depress demand for gasoline, and therefore oil.
None of this is going to be good for oil demand, or oil stocks -- or anti-oil stocks, either, for that matter. That's why, if I were invested in energy stocks today, I'd be viewing today's stock market rally more as an opportunity to exit than as a cue to buy more.