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They Can't Give It Away - U.S. Crude Price Turns Negative for First Time

CommoditiesApr 20, 2020 03:34PM ET
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© Reuters.

By Barani Krishnan 

Investing.com - U.S. crude prices turned negative the first time in history on Monday, with virtually zero buyers turning up for prompt delivery oil in a market woefully glutted by the coronavirus pandemic.

West Texas Intermediate crude futures for May delivery fell to a session low of minus $40.32 per barrel and settled the day at minus $37.63. That meant a notional loss of $55.90 per barrel from its Friday settlement of $18.27.

June WTI, which Investing.com is already quoting as reference for U.S. crude given its outsize volume to May, settled at $20.43 per barrel, down $4.60 or 18.4% from Friday’s settlement.

Brent, the London-traded global benchmark for crude, meanwhile, lost $2.51 on its front month June contract to settle down 9% at $25.57. June Brent was at a contango, or discount, of more than $4 to July Brent.  Even more important, its differential to WTI — a big trade in oil — was at an unimaginable $63.

“I am worried about the dislocation of the WTI - Brent spread,” Igor Windisch of the IBW Daily Oil Brief said in a note Monday. “The worrying thing is that there is no support line for Brent.”

Since WTI futures began trading on the New York Mercantile Exchange in April 1983, the lowest the U.S. crude benchmark had gotten to prior to this was $9.75 in April 1986.

“What this tells you is that there’s just a mega glut of oil out there, that’s not going to be clearing anytime soon,” said John Kilduff,  founding partner at New York energy hedge fund Again Capital.

“As a matter of fact, we have a big problem on our hands in terms of storage,” Kilduff added. “The storage situation is filling up and refiners aren’t buying, motorists aren’t buying. nobody is buying; so there’s just a tremendous back up of crude oil throughout the system and you have to pay dearly now if you want somebody to take it off your hands.”

Amid the Covid-19 pandemic that’s destroying demand for oil faster than producers can cut, the market has been laser-focused on how much storage is left globally for crude and whether that will run out soon. 

According to known data, storage at the Cushing, Okla. hub for WTI deliveries reached 71% of working capacity as of April 10 — up 15% from two weeks earlier. 

At the rate Cushing is building, an average of 16 million barrels weekly over the past three weeks, analysts say the hub could hit capacity by mid-May, or the first few weeks of June, at the latest.

Oil storage on sea is growing too. Global crude tankers are estimated to hold a record high of 160 million barrels, double from just two weeks ago. 

Rystad Energy in Oslo, Norway, has estimated previously that U.S. storage capacity by end-April could drop to as little as 200 million barrels on paper, although in practice, available crude capacity might be closer to 150 million barrels.

“As storage fills up, countries are being forced to shut-in production on a large scale to counteract a theoretical oversupply of 21 million bpd in 2Q20,” Teodora Cowie, senior analyst at Rystad, wrote in a note Monday.

The story isn’t over yet for May WTI, which is only expiring Tuesday. It  has to converge with physical oil in the market, whatever that trades by Tuesday’s close. That leaves to anyone’s imagination what May’s final price would be. And whatever that it is, it will have an immense impact on June WTI, which becomes the front month from Wednesday.

They Can't Give It Away - U.S. Crude Price Turns Negative for First Time
 

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Comments (71)
Zen Cat
LittleZenCat Apr 21, 2020 10:11AM ET
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2020, the only time where you can trade a McDonalds meal for a barrel of oil. LOL
Fred Smith
Fred Smith Apr 20, 2020 10:29PM ET
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Hey California, I know u ppl miss Barry Obama $6.00 per gallon
Nw Hybrid
Nw Hybrid Apr 20, 2020 10:29PM ET
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He'll, I'd take $10.00 per gallon if there was somewhere to go
Fred Smith
Fred Smith Apr 20, 2020 10:27PM ET
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Supply and demand,,,just like crazy Obama and Bush said about oil, gas , whatever..
Fred Smith
Fred Smith Apr 20, 2020 10:25PM ET
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He gas station owners, that $1.68 is going to get you 0 business..Try .99 for 87 octane.
Ciro Mendez
Ciro Mendez Apr 20, 2020 8:59PM ET
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Barani, ir seems strange to me that WTI went negative and oil companies, XOM for example, share price fell only 4.7% in the day. Do you have an explanation for this?
John Barnick
John Barnick Apr 20, 2020 8:54PM ET
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Trump pull out
john richards
john richards Apr 20, 2020 7:53PM ET
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So much for peak oil. Another in an endless string of epic fail leftist doomsday models.
Isidro Fernandez
Isidro Fernandez Apr 20, 2020 7:19PM ET
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are we filling up gas tank for free soon?
Mark Jones
Mark Jones Apr 20, 2020 7:19PM ET
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or pay the consumer to fill her up!
Michael Cegielski
Michael Cegielski Apr 20, 2020 6:54PM ET
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Imagine a world where an empty 55-gallon drum is more valuable than one filled with oil. And then short OIL; with all the money you make, fill your backyard with empty 55- gallon drums! But rent them out; don’t buy any oil!
Gervais Christopher
Gervais Christopher Apr 20, 2020 6:46PM ET
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The oil companies didn't seem to care when oil was over $100. TO BAD !!! Eat the hard times!!! After fleecing Americans for 100 years, I Think Rockefeller's have plenty of money to keep the oil companies afloat.
 
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