West Texas Intermediate for June delivery fell 3.4% Tuesday after the outright price of futures contracts and the spread between June and July contracts were shaken by volatility. An abrupt decision by S&P Global Inc. to tell customers to sell their interests in the June contract brought prices down to almost US $ 10 per barrel in intraday trading. Crude stocks quickly fill up, forcing investors to face the possibility that space will not be available for physical barrels before the contract expires in June.
“The June contract will look like what happened with May,” said commodity fund manager Tariq Zahir at New York-based Tyche Capital Advisors LLC. “It could go to twenty dollars, it could go to four dollars, it could become negative. You are in an unprecedented era. June could be everywhere. “
The rebate on crude oil for delivery in June compared to July, a structure known as contango, widened to US $ 7.69 per barrel before rising to US $ 5.26.
“You always see contangos when the storage starts to fill up,” said Zahir. “The spread of these levels is exaggerated with these funds. Just the ones who sell the June contract and buy the July contract, that alone will widen the spread. “
The 80% drop in oil since the start of the year came as the coronavirus epidemic destroyed demand for fuels worldwide. In response, the world’s largest producers have pledged to cut daily production starting next month to balance the market, but the collapse in consumption has led to an overabundance of swelling that is testing storage limits around the world.
S&P is behind the GSCI Commodity Index, a popular investment product followed by pension funds and other global investors. When S&P changes the investment policy, the banks that sell the product in turn move their assets, triggering volatile energy markets.
“This unanticipated rollover is being implemented based on the potential of the WTI crude oil contract of June 2020 at a price equal to or less than zero,” said S&P in a notice published by Bloomberg News. A spokesperson confirmed the opinion.
- WTI for June delivery fell 44 cents to US $ 12.34 per barrel in New York.
- Brent crude for the same month rose 47 cents to US $ 20.46 a barrel.
- The traded products traded – notably the United States Oil Fund LP – also carried forward June futures positions into later contracts, while the Bloomberg Commodity Index has announced that it will roll from July to September.
Since the WTI negotiated negatively last week, more than 40% of the June contract has been closed. The assets of the July contract are stable, while those of the September futures contracts jumped by almost 20%.
Other oil news:
- The US Petroleum Fund posted a net loss of US $ 1.19 billion in March, according to a regulatory record.
- BP Plc has said it will review its dividend policy quarter by quarter as investors and analysts question the sustainability of the payment in the face of a severe drop in oil prices.
- Crude futures traders jumped a month after the fireworks that knocked the May contract below zero.
- While the market is affected by financial flows, Russia has warned that there will be no quick fix at low prices. The country’s energy minister Alexander Novak said on Tuesday that the oil market could not begin to rebalance until the second half of the year. Before the production cuts, which begin on May 1, supplies from the Organization of the Petroleum Exporting Countries jumped to more than 31 million barrels a day, according to Geneva-based oil farmer Petro-Logistics.
– With the help of Alex Longley, James Thornhill, Sharon Cho and Grant Smith.