WTI price can turn negative again

BAKU, Azerbaijan, May 21 By Leman Zeynalova – Trend: The relative mismatch between supply and demand could, in turn, exert additional pressure on the WTI futures prices, shortly before the contract for June physical delivery expires, Trend reports with reference to the analysis of Gas Exporting Countries Forum (GECF). NYMEX WTI futures price turned negative shortly before the contract was due to expire. “With this line of reasoning, it is sound practice to explore the possibility of the NYMEX WTI futures price falling to negative values in the future. It is worthwhile to analyze different aspects of this possibility, namely stocks and storage levels, in light of the balance in the supply-and-demand,” reads the report. Cushing crude stocks have been increasing over the past weeks. They stood at 65.4 mb for the week ending on May 1st. This volume is approximately 10 mb below current working storage capacity at Cushing. “On the crude oil demand side, we note that US refinery intake has been reported by the EIA at 12.97 mb/d for the week ending on May 1st. This is more than 3 mb/d lower, or 23 percent, compared to the lower bound of the latest 5-year range. At the same time, US crude oil production has also been declining over the COVID-19 period,” said GECF. The NYMEX WTI price plunged on April 20th by more than 300% day-over-day and settled in negative territory (-$37.63/bbl) for the first time on record. NYMEX WTI is a financial tool (futures contract) used primarily for risk management and mitigation (hedging). On that day, the NYMEX WTI contract for delivery in May was about to expire, leaving contract holders exposed to a physical oil delivery into the landlocked and logistically-constrained Cushing in Oklahoma (market players usually close their future contracts by means of cash settlement, ahead of the contracts’ expiration). Moreover, during this time Cushing’s storage facilities have been quickly approaching storage capacity of 76 mb, implying higher storage costs for new physical crude deliveries. While it should be distinguished between the NYMEX WTI price and the price of physical (spot market) crude oil, NYMEX WTI’s sharp decline reflected the overall market situation in the US and global oil market. The COVID-19 imposed restrictions significantly dented demand, resulting into a pronounced build-up of oil stocks around the globe. For example, physical crude oil stocks at Cushing increased a whopping 2.1 mb week-over-week, whereas total US commercial crude oil stocks moved up by nearly 5 mb week-over-week, according to the EIA Weekly Petroleum Status Report for the week ending on May 1st. --- Follow the author on Twitter: @Lyaman_Zeyn