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by Julia Groß, Euro on Sunday
On days before an oil future expires, there are often larger price fluctuations. However, what happened last with the May contract for the American oil grade West Texas Intermediate (WTI) is unprecedented in the 35-year history of future trading. If you bought a future on WTI on Monday night, April 20, you got the oil and $ 37.63 a barrel.
The crash is a harsh memory of itthat WTI futures trading is not a purely financial transaction like buying or selling a stock. Brent oil has the option of cash compensation, but WTI futures are supply contracts with a delivery time and place of delivery. The place is the small town of Cushing in the US state of Oklahoma, where pipelines from different parts of the country meet with the oil lines to the refineries on the Gulf of Mexico.
The International Energy Agency IEA expects oil demand to drop by almost a third in April. Accordingly, refineries worldwide have reduced their production and are buying less crude oil. In the USA, the raw material is stranded in Cushing, because oil drilling cannot be stopped overnight. However, the storage tanks in the village were already over 70 percent full on April 10. “The remaining capacities also appear to be fully booked in advance.
This problem is not only in cushing, but worldwide, “says Eugen Weinberg, commodity analyst at Commerzbank. The result: the closer the May contract came to an end and the delivery date for WTI approached, the more panicked traders tried to get rid of the futures world’s largest energy futures exchange, declaring that it would allow negative prices, the WTI price plummeted, with virtually no buy orders, traders report.
The price slide is scattering
The June contract for WTI has also fallen sharply in the meantime, trading on Thursday at around $ 15 a barrel. Brent oil is less affected by the storage problem, since this oil is mainly transported by sea and there is more flexibility here, for example in the form of tankers to park excess capacity. “However, it is unlikely that Brent will be spared entirely,” said Stefan Kreuzkamp, DWS Chief Investment Officer. The massive production cuts that OPEC and some other oil exporters have recently committed to are not currently sufficient to compensate for the decline in demand.
The record low price level attracts buyers. China and Australia, for example, want to create reserves. Investors are also speculating on a recovery in the oil price if the Covid 19 pandemic subsides in the second half of the year. But whoever relies on oil certificates or ETCs will probably not make a good cut due to the roll losses of the products that arise when switching to the currently much more expensive next contract.
The consequences of the fall in prices are likely to be felt far beyond the oil sector. DWS sees negative effects for bonds from oil-exporting countries and US high-yield bonds. The ruble should also remain under pressure. The fracking sector faces bankruptcies and risks for US and Canadian banks that have given loans to oil companies. Only companies like Vopak (ISIN: NL 000 943 249 1) can actually be happy. The Dutch tank farm operator’s share has gained around 15 percent in the past three weeks.
More oil price news (Brent)
Image sources: Tomasz Wyszolmirski / Shutterstock.com, Dzmitry Kliapitski / Shutterstock.com