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The price of oil continues to fall
Day-to-day storage capacity continues to put pressure on oil prices, and market participants are increasingly pessimistic about how quickly pre-crisis fuel demand can recover once restrictive measures are lifted . US oil producers USA They are already transporting their stocks to the strategic oil storage facility after almost all the storage facilities are operational.
WTI started the day again with a much bigger drop than Brent, refocusing local storage issues on investors’ focus. So far, WTI has dropped 16 percent, hovering around $ 11, And if the exchange rate stayed at those levels, we could say that the June WTI exchange rate has never closed so deeply, losing more than 80 percent of its value this year.
Brent futures trading for June started the morning with a 4 percent drop, and it also showed a terrible performance this year, with the exchange rate already falling more than 70 percent. At the moment, it was down to less than about one percent.
The world’s storage capacity is dangerously depleting
The market is now paying the most attention to the growth of world oil reserves, which is even more pronounced in the case of WTI, which is a type of oil on land. The depletion of available capacity at the Cushing storage site at the WTI physical delivery point is a key factor in the price of US-type crude oil, because it depends directly on whether we can see negative oil prices again. According to a market source, the world’s onshore capacity may have been 85 percent saturated at the end of the previous week.
To J.P. According to Morgan, the production capacity of one million barrels per day would have to be closed in April to prevent Cushing’s storage capacity from increasing above 90 percent in May and June.
Oil funds fight for survival
A United States Petroleum Fund (USO), the world’s largest passive fund investing in oil, has previously reported a change in its investment policy, including a significant rebalancing at later maturities. In this context sold all of its interest in the WTI maturing in June.
A major role in the underperformance of the WTI may be that large ETFs that invest in oil diversify their positions, so they sell their June futures contracts and acquire subsequent maturities, as no one wants to walk like the last two maturities of the May deadline. happened on the day of.
Mutual funds don’t want to let their positions drift at the last minute, potentially selling their contracts at a negative price.
You can see that there is a lot of work and headaches in the big oil funds, the USO has already changed its investment policy five times in the last two weeks.
Growing contagious
The spread between the June delivery and July futures WTI rates also widened yesterday, rising to $ 5.3 from $ 4.28 the day before. This is also a good indication that the market is becoming increasingly nervous and sees an increasing possibility that negative oil prices may occur again.
Contango means that the price of oil in the longer term is higher than the price of the short-term maturity, compared to the decline. When a futures position is shifted, the expiration date is sold and the next is bought, they suffer a loss in each displacement due to the contour.
The rescue army will be here soon.
OPEC + reached an agreement on Sunday, April 12, to reduce oil production, which decided to cut 9.7 million barrels per day, but only from May 1. There are already positive signs from Russia and Saudi Arabia that they will keep their promises to cut production.
The IEA predicts that demand for crude oil could drop globally by 29 million barrels / day in April due to the introduction of quarantines. This is a staggeringly large number, which means that almost 30 percent of global oil consumption could disappear any time soon.
Cover image: Frank Mächler / Picture Alliance via Getty Images
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