Your Opinion Is Now Worth More Than a Barrel of Oil

While OPEC member states and other oil-producing counties have signed a pact to stem the flow of crude by 10 million barrels a day and hopefully rein in the current price-crashing glut, the situation remains bleak for oil producers around the world. On Monday, May futures for West Texas Intermediate (WTI) dropped to the floor, with prices hitting $5 per barrel.

That number shifted into the negative* as the above paragraph was being written. We’re guessing that’s because the end of the May contract forces physical receipts at a time when storage capacities are basically nonexistent. June WTI prices are still riding just below $23 per barrel.

Meanwhile, Brent Crude is hovering around $26 bbl as the OPEC Basket hangs onto $17.73 bbl on a 4-day delay. The assumption is that both will come down, though perhaps not as dramatically as WTI did.

(*WTI crude futures hit negative 40 dollars a barrel by publication time – Ed.)

It’s no secret that the global coronavirus pandemic has sent oil futures reeling backwards. Extended government-imposed shutdowns have stifled industrial and shipping operations while doing the same for personal transportation. This obliterated the planet’s need for oil. Oversupplied to a point where the industry wasn’t even sure it would even have a place to store all the black gold, futures began suffering and OPEC did the unthinkable by agreeing to curtail production. Bloomberg framed the situation at the start of the week, just as WTI prices started boring their way toward the center of the earth:

On Monday, a technical oddity exacerbated the price plunge as traders fled the May futures contract ahead of its expiration tomorrow, driving it down as much as 78 [percent] to the lowest level since futures began trading in New York in 1983. The following month’s contract fell 11 [percent] to $22.22 a barrel. CME group said it’s possible that May WTI contract could trade negative.

“There is little to prevent the physical market from the further acute downside path over the near term,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets. “Refiners are rejecting barrels at a historic pace and with U.S. storage levels sprinting to the brim, market forces will inflict further pain until either we hit rock bottom, or COVID clears, whichever comes first, but it looks like the former.”

We’re now reaching a point where some oil producers may actually be forced to pay to offload product. Some corners of the U.S. market had already begun doing so on a limited basis prior to Monday. Production cutbacks have continued to offset this globally, but most analysts are shrugging today, assuming the drop in WTI futures will probably be echoed by similarly sharp declines in Brent and OPEC Basket later this month.

“The background psychology right now is just massively bearish,” Michael Lynch, president of Strategic Energy & Economic Research Inc said in a interview. “People are concerned that we are going to see so much build up of inventory that it’s going to be very difficult to fix in the near term and there is going to be a lot distressed cargoes on the market. People are trying to get rid of the oil and there are no buyers.”

[Image: Maksim Safaniuk/Shutterstock]