New York futures fell 13% on Friday. China’s economy experienced a historic slump in the first quarter after the coronavirus epidemic threatened global product markets. Meanwhile, OPEC predicts demand for its oil will drop to its lowest level in three decades, as refiners from Asia to Europe cut or cancel purchases. Meanwhile, prices in the physical oil market have disconnected from futures contracts, with landlocked crudes such as Bakken and Western Canadian Select worth around US $ 11 to US $ 12 per barrel.
In the United States, a large exchange-traded fund plans to move part of its giant futures position to a later month. The move comes at a time when short-term US crude prices are trading at huge discounts on newer contracts, as the Cushing, Oklahoma storage center will be full. This has seen prices disconnect from London Brent futures.
May American crude futures expire on Tuesday. There is less and less space to put oil in Cushing, said by telephone Phil Flynn, senior market analyst at Price Futures Group Inc. “You deliver oil in the worst delivery situation in recent memory,” did he declare.
May’s West Texas Intermediate futures, which expire on Monday, are close to $ 7 a barrel higher than June futures, close to the largest spread between first and second month contracts in 11 years. Dated Brent was valued at $ 18.86 US on Thursday, according to S&P Global Platts, well below futures prices, and actual cargoes are trading at even higher discounts.
“As this contract matures and becomes closer to the cash market, it is shrinking more and more,” said John Kilduff, partner at Again Capital. Oil storage is filling up and “it is a matter of weeks before we have to resolve this situation.”
Oil investors looking for a low on the West Texas Intermediate crude oil price rush rushed to exchange traded funds. Long net positions exceeded 400,000 lots on Friday, the highest since at least 2016.
So far this week, investors have poured more than US $ 1 billion into the US Petroleum Fund ETF. As of Thursday’s close, the fund held more than a quarter of all June WTI contracts. Friday, the fund will now hold 20% of its contracts in the second month of WTI.
“The amount of ETF oil purchases has been staggering,” hedge fund manager Pierre Andurand wrote in a tweet.
- West Texas Intermediate lost US $ 1.74 to US $ 18.13 per barrel at 1:46 p.m. New York. The contract traded at US $ 17.31 at the start of the session, the lowest since 2001.
- Brent crude oil rose 3.1% to $ 28.69 a barrel.
- The collapse in oil prices is causing production to drop rapidly. Crude oil rigs in the United States fell from 66 to 438, the lowest since October 2016, Baker Hughes said on Friday.
With the OPEC and partners’ production reduction agreement failing to boost prices, Saudi Arabia and Russia said they “would continue to closely monitor the oil market and were ready to take further action jointly with OPEC + and other producers if they are. ” deemed necessary. Saudi Aramco announced Friday that it will reduce supplies to 8.5 million barrels per day starting May 1.
“We are seeing record declines, but still not enough to bring the market back to near equilibrium,” said Warren Patterson, head of commodity strategy at ING Bank NV. “Even OPEC’s own figures have shown it. It’s a continuation of history. “
– With the help of James Thornhill and Catherine Ngai.