20 April 2020

Today, for the first time ever, prices for an oil futures contract went negative.

  • While this reflects that producers of WTI actually have to pay to get inventory off their hands (instead of receiving pay for it), this does not mean oil is free downstream.
  • This market phenomenon occurred in anticipation of the current front-month (May) WTI contracts expiring Tuesday as producers struggle to find storage space for inventories.
  • Looking at the current WTI contracts for delivery in June, July and August – prices remain weak but significantly above zero.

We anticipate expedited cuts among US producers after today’s events in addition to significant volatility in oil futures contracts as the market tries to make sense of a number of questions specific to WTI storage in addition to COVID-19’s global impact on oil demand.

 

Disclosure:  This is an opinion article not intended as investment advice – making investment decisions without your own evaluation of ideas is not investing; always do your own research and speak with an investment advisor, if you have one, before making any investment decisions.  Any opinions expressed are as of the date of publication.