They Can't Give It Away - U.S. Crude Price Turns Negative for First Time

By Barani Krishnan 

Investing.com - U.S. crude prices turned negative the first time in history on Monday, with virtually zero buyers turning up for prompt delivery oil in a market woefully glutted by the coronavirus pandemic.

West Texas Intermediate crude futures for May delivery fell to a session low of minus $40.32 per barrel and settled the day at minus $37.63. That meant a notional loss of $55.90 per barrel from its Friday settlement of $18.27.

June WTI, which Investing.com is already quoting as reference for U.S. crude given its outsize volume to May, settled at $20.43 per barrel, down $4.60 or 18.4% from Friday’s settlement.

Brent, the London-traded global benchmark for crude, meanwhile, lost $2.51 on its front month June contract to settle down 9% at $25.57. June Brent was at a contango, or discount, of more than $4 to July Brent.  Even more important, its differential to WTI — a big trade in oil — was at an unimaginable $63.

“I am worried about the dislocation of the WTI - Brent spread,” Igor Windisch of the IBW Daily Oil Brief said in a note Monday. “The worrying thing is that there is no support line for Brent.”

Since WTI futures began trading on the New York Mercantile Exchange in April 1983, the lowest the U.S. crude benchmark had gotten to prior to this was $9.75 in April 1986.

“What this tells you is that there’s just a mega glut of oil out there, that’s not going to be clearing anytime soon,” said John Kilduff,  founding partner at New York energy hedge fund Again Capital.

“As a matter of fact, we have a big problem on our hands in terms of storage,” Kilduff added. “The storage situation is filling up and refiners aren’t buying, motorists aren’t buying. nobody is buying; so there’s just a tremendous back up of crude oil throughout the system and you have to pay dearly now if you want somebody to take it off your hands.”

Amid the Covid-19 pandemic that’s destroying demand for oil faster than producers can cut, the market has been laser-focused on how much storage is left globally for crude and whether that will run out soon. 

According to known data, storage at the Cushing, Okla. hub for WTI deliveries reached 71% of working capacity as of April 10 — up 15% from two weeks earlier. 

At the rate Cushing is building, an average of 16 million barrels weekly over the past three weeks, analysts say the hub could hit capacity by mid-May, or the first few weeks of June, at the latest.

Oil storage on sea is growing too. Global crude tankers are estimated to hold a record high of 160 million barrels, double from just two weeks ago. 

Rystad Energy in Oslo, Norway, has estimated previously that U.S. storage capacity by end-April could drop to as little as 200 million barrels on paper, although in practice, available crude capacity might be closer to 150 million barrels.

“As storage fills up, countries are being forced to shut-in production on a large scale to counteract a theoretical oversupply of 21 million bpd in 2Q20,” Teodora Cowie, senior analyst at Rystad, wrote in a note Monday.

The story isn’t over yet for May WTI, which is only expiring Tuesday. It  has to converge with physical oil in the market, whatever that trades by Tuesday’s close. That leaves to anyone’s imagination what May’s final price would be. And whatever that it is, it will have an immense impact on June WTI, which becomes the front month from Wednesday.

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