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WTI crude oil falls due to the fear of the lack of storage

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WTI crude oil falls due to the fear of the lack of storage
April 28
09:00 2020

Today, the WTI crude oil is plummeting. The fall has amounted to 15%.The investors’ desire to get rid of futures with a close shipment date in a situation of the clear lack of shortage caused the sharp fall.

June futures for Brent crude oil have dropped too. At 7.15 Moscow time, the decrease amounted to 5.1% compared with the closing price of the previous trading session. The asset was trading at around 18.96 US dollars per barrel. At the same time, June contracts for WTI  crude oil have fallen to $ 10.9 per barrel, i.e. the decrease has totaled 14.7%. For yesterday’s session, the asset has lost a quarter in value.

 The representatives of the United States Oil Fund LP, which is the largest oil fund, made a statement, which caused yesterday’s decline. Just sharing plans about selling all the June contacts from the company’s portfolio was enough to make the quotes fall. We are talking about assets worth 0.72 billion US dollars. The fund was forced to take the measures imposed by the Exchange in order to comply with restrictions on the volume of contracts. The Exchange, in turn, was forced to impose such restrictions in order to minimize the risks of the asset entering into the negative zone.

By the way, many analysts are skeptical about the effectiveness of such restrictions. Investors’ fears about the possibility of a new drop in contracts below zero lead to a global decrease in the liquidity of the energy market.

Experts estimate that it will be possible to avoid the fulfilling of storage facilities in Cushing, only if in April American producers are able to limit production by another million barrels per day. 

There is a slight recovery in demand in the oil market. On Friday, the OPEC+ agreement on a global reduction in production will come into force. But most analysts agree that the measures taken are too late and insufficient to balance the market.

 

The material was prepared with the participation of Katya Wilson,
a leading analyst of the brokerage company UFT Group

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