U.S. crude futures turn positive after historic plunge, Brent falls

U.S. crude futures turn positive after historic plunge, Brent falls ...
reuters.com 21/04/2020 Economy

Keywords:#Asia, #Bengaluru, #Brent, #China, #GMT, #Goldman_Sachs, #ING, #India, #Mackenzie, #OPEC, #Retail, #Reuters, #Reuters.com, #Wood_Mackenzie

By Jane Chung
SEOUL (Reuters) - U.S. oil prices hobbled back into positive territory on Tuesday after sinking below $0 for the first time ever, but international benchmark Brent dipped as the global coronavirus crisis severely reduces demand for crude.
U.S. West Texas Intermediate (WTI) crude for May delivery CLc1 was up $38.99 in thin trade at $1.36 a barrel by 0622 GMT after settling down at a discount of $37.63 a barrel in the previous session.
The May contract expires on Tuesday and the more-active June contract CLc2 rose 94 cents, or 4.6%, to $21.37 a barrel.
Global benchmark Brent crude for June delivery LCo1 was down 48 cents, or 1.9%, at $25.09 per barrel.
“Demand destruction from COVID-19 will see a slower than expected reopening of the U.S. economy,” said Edward Moya, senior market analyst at broker OANDA, predicting a weak period for oil prices. “The WTI crude June contract was able to hold the $20 a barrel level and is seeing a modest gain following the painful rollover of the May contract.”
Oil prices have skidded as travel restrictions and lockdowns to contain the spread of the coronavirus curbed global fuel use, with demand down 30% worldwide. That has resulted in growing crude stockpiles with storage space becoming harder to find.
Analyst View: After U.S. oil futures crash, what next?
(Reuters) - A historic rout in oil markets sent U.S. crude prices plummeting to as much as minus $40 a barrel as traders rushed to get rid of unwanted stocks with storage capacity already overflowing amid a coronavirus-induced demand collapse.
U.S. West Texas Intermediate (WTI) crude for May delivery CLc1 recouped some losses on Tuesday to be just in positive territory, leaving market participants to assess the wider implications.
Here is what analysts expect in terms of market response:
Goldman Sachs
* “Such a price dynamic could play out again tomorrow (April 21), the last trading day of the May contract. After that, the physical reality of a still massively oversupplied oil market will likely exert downward pressure on the June WTI contract.”
* “But with ultimately a finite amount of storage left to fill, production will soon need to fall sizeably to bring the market into balance, finally setting the stage for higher prices once demand gradually recovers.”
Sushant Gupta, downstream research director, Wood Mackenzie
* “The historic drop in WTI prices is an indication of the downward pressure which many other crude oil grades could face, given the oversupply situation.”
* “It also provides an opportunity for large consuming nations in Asia such as China and India to expedite filling up their petroleum reserves. The capacity left this time around is much less compared to the 2014/15 crash.”
Howie Lee, economist, OCBC
* “It is not the end of the world, and the negative prices are not reflective of the entire state of the market.”
* “Will this happen again? I will not bet against it. The lack of storage/expensive storage is unlikely to be resolved unless demand either improves, or the U.S. cuts its output.
* “The timeline for the U.S. reopening its economy remains an enigma, although a conservative bet would be from July onwards. At the same time, the U.S. is unwilling to reduce output via centralized planning as that goes against capitalism ideals”.
ING Economics
* “A key question is whether we could see a repeat of this with the June expiry next month. It is likely that storage this time next month will be even more of an issue, given the surplus environment, and so in the absence of a meaningful demand recovery, negative prices could return for June.
* “Another factor which could add further downward pressure to the June contract as we approach its expiry is index rolling. Retail investors have piled into oil ETFs (exchange traded funds) at these lower prices, and so these ETFs hold a larger than usual share of the June contract open interest.”
* “WTI futures rebounded in early Asian trading; but we suspect the WTI June future will come under pressure unless there is more immediacy around supply closures. This may come as forced closures or even bankruptcies in the U.S. shale industry.”
Stephen Innes, chief market strategist, AxiCorp
* “It’s far too early to call this a trade gone wrong with reopening happening around the world amid the increased likelihood of additional short term interventions from the G-20 and OPEC+ producers.”
* “But this meltdown brought to bear a level of hedging unsophistication that more resembled pen and paper 1980s trading rather than the computer-modeled era of 2020.”
Reporting by Arpan Varghese in Bengaluru; Editing by Richard Pullin
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