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© Reuters. By Barani Krishnan
Investing.com – Oil is marching at the rate of storage. And it may be the only pace that matters, as US crude oil prices. USA They fell more than 25%, returning from a market traders couldn’t get enough of last week to one they can’t run away from fast enough.
The United States Petroleum Fund (NYSE :), a publicly traded fund known as USO and popular with retail oil investors, accelerated the risk reduction for crude as it unexpectedly moved to sell all of its holdings in West Texas Intermediate contract most active futures. That triggered a massive change in the price relationship between WTI in June and nearby July contracts.
US crude oil inventories USA They are about to break the record high of 535 million barrels in 2017 in two weeks, if their average construction rate of 16 million bpd is maintained in the past four weeks. The Cushing, Oklahoma delivery point for expiring WTI crude contracts could be completed in less than four weeks, if the 4.5 million construction average over the past two weeks becomes a trend. Meanwhile, US production has fallen by less than 1 million barrels a day in the past six weeks, from a record 13.1 million a day in mid-March to 12.2 million bpd last week.
Thats not all. Floating crude oil storage reaches a record high of 160 million barrels. Goldman Sachs (NYSE 🙂 says the global market is on track to test storage capacity limits in as little as three weeks, requiring the closure of almost 20% of global oil production.
“There is an order book and a wall of crude oil that the market simply cannot look any further as global storage centers fill up,” said Phil Flynn, analyst at Price Futures Group in Chicago. “Oil-filled tankers floating in the ocean with nowhere to go and producers cutting but not fast enough to overcome the most significant demand destruction event in world history.”
set $ 4.16, or 24.6%, at $ 12.78 per barrel.
, the world benchmark crude oil index traded in London, fell $ 1.74, or 7%, to $ 23.07.
But not everything there is is bearish for oil.
Italy, the country most affected by the coronavirus before the United States, is looking to ease blockages starting May 4 after an apparent spike in infections and deaths from the outbreak. New York, the epicenter of the pandemic in the United States, is also seeking to reopen parts of its economy, following at least half a dozen of the 50 US states that have taken relaxed measures. They responded by increasing more than 1%.
And production cuts are coming. The long-awaited production cuts by OPEC and its global allies officially begin on Friday. The GLOPEC agreement is committed to cutting at least 9.7 million barrels per day. Kuwait, OPEC’s fourth largest producer, says it has already started to get ahead of the group. Nigeria too, because there is nowhere to put more oil. US drillers have dumped 305 in six weeks, technically eliminating 45% of the production of operating oil shale.
In Russia, the industry is even considering turning to burning oil as the fastest means of getting rid of supply, sources told Reuters.
At the business end, BP (LON 🙂 reports quarterly earnings on Tuesday, Shell (LON 🙂 on Thursday, and ExxonMobil (NYSE 🙂 on Friday, and it all seems to cut capital spending.
However, all of this may not be fast enough in a world that loses between 20 and 30 million bpd on demand. Time is of the essence and is not on the oil side at the moment.
And that weighs on the initial WT month, June, which is trading at a contango, or discount, of more than $ 5 a barrel through July. Open interest in the spot contract has dropped nearly 255 million barrels in the past week. As of Monday, it was about 55 million barrels less liquidity as of next July.
The changing open interest indicates that investors prefer to be on a “safer” contract that promises to deliver oil sooner rather than later in a saturated market.
It is also a sign that as the June WTI expiration approaches in less than three weeks, the month before it could be ready for another round of below-zero prices, as evidenced by the May contract, which expired on Wednesday. past.
In its change on Monday, the USO ETF said it was transferring its money to contracts spread between July 2020 and June 2021 due to new limits imposed by regulators and its broker. That significantly widened the June-July spread on the WTI, which has become a target for speculators.
“The ‘value’ for WTI is very different today than it was a month ago. WTI, it was very expensive a month ago compared to everything and now it’s priced much fairer than it was,” said Scott Shelton, futures broker at IPAC power in Durham, North Carolina. “But I’m not ready to be long, as it’s not ‘cheap’ ‘yet.”
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