Rystad Energy: "physical oil market broken beyond recognition"

"The front month NYMEX WTI contract has defied gravity and what was previously perceived as a normal positive level, by trading below negative US$40 a barrel yesterday in its second-to-last trading day before trading in the contract seizes.

For the futures contract, which has physical delivery of 1000 bbl of WTI-like crude attached to it if the holder’s position is not closed out before trading seizes, contributed to the worst dislocation of price of the world’s most important commodity yesterday, delivered during May 2020 at Cushing, Oklahoma. Essentially, with 108 million barrels worth of contract positions still not closed by the traders in the market, the buyers were rushing for the door to avoid taking physical delivery of crude at Cushing in May – because “where am I going to store that oil” when remaining available storage capacity is believed to run out during the next few weeks. The swings were most likely exacerbated by algorithms and open contracts by indices and ETFs, resulting in a market with “no buyers” and a lot of sellers.

Prices are this morning on the last day of trading swinging between positive and negative territory. Most physical oil prices in the US are today offered at negative values reflecting the severe dislocation in available storage capacity versus supply-demand in the market in the near term. We believe the market will be under continued downwards pressure for the coming weeks as well, as supply shut-ins have not yet occurred to a sufficient extent to balance supply with the low demand.

OPEC+ cuts will only come into effect from 1 May and will remove much less than 9.7 million bpd of the market in May, we believe, due to lack of full compliance for many upstream producers in the agreement.

The market needs to also see additional upstream shut-ins across the globe to the tune of 6-7 million bpd for 2Q20, if the demand loss from Covid-19 is around 20 million bpd this quarter."

Read the article online at: https://www.oilfieldtechnology.com/special-reports/21042020/rystad-energy-physical-oil-market-broken-beyond-recognition/