WTI May futures and oil storage issues likely to have rippling effect on global markets

Following the news that the West Texas Intermediate (WTI) May futures nosedived 300% to as low as almost negative $40 in early trades on 20 April 2020;

Nandakumar Premchand, Director at GlobalData, a leading data and analytics company, offers his view:

“This being the last day of the expiry of the May futures, ETFs such as US Oil, other fund houses and traders were forced to liquidate their positions.

“COVID-19 and its containment measures across the globe have meant that the demand for oil has gone down by 30%. Though OPEC+ decided to cut production by 10% by 9.7 million bpd, that will only take effect in May. Saudi has already lined up shipments for the United States. Given this and the storage space in the US fast filling up, we are looking at massive storage issues in the months to come.

“The WTI June futures were trading at around US$22. Taking note of the fact that ETFs like the USO will not take a physical delivery of oil, the strategies adopted by traders for the June expiry will be closely examined. With many feeling that the 10% production cut wasn’t enough in the current times, it will be interesting to see if there are further production cuts or if the FED intervenes in some fashion to douse the fire.

“Oil prices at these levels and the lack of demand will mean that we could be looking at pandemonium next month, especially if the lockdown extends beyond May. With companies signing up for floating storage tankers globally to store excess oil, even this option will cease to exist shortly.”

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