Oil prices up as investors pick up pieces after “devastating” previous session
LONDON, April 21, 2020 – Oil prices were up on Tuesday morning as investors pick up the pieces after a shock session that saw negative prices on a futures contract for the first time since futures trading started in 1982.
WTI futures for May delivery slumped to -$37.63 in the previous session ahead of the contract’s expiry on Tuesday, hitting investors with the reality of a supply glut.
“Today was a devastating day for the global oil industry,” Doug King, co-founder of the Merchant Commodity Fund, told Bloomberg.
But WTI futures clawed back the huge losses by gaining 7.05% to $21.87 on the last day of the May contract. Brent oil futures, which had already rolled into the June contract and thus not affected, could not hold onto earlier gains and dropped 0.89% to $25.73 by 9:51 PM ET (2:51 AM GMT).
The previous session’s losses highlighted the extent to which oil demand has shrunk due to the COVID-19 pandemic and begun to affect prices. Even the OPEC+ deal earlier in April to cut production by almost 10 million barrels starting on May 1 may not be enough to make up for the lost demand.
“Oil futures continue to defy gravity,” Louise Dickson, Rystad Energy oil markets analyst, told CNBC. “This moment is of course historical and could not better illustrate the price-utopia that the market has been in since March, when the full scale of the oversupply problem started to become evident but the market remained oblivious,” she added.
“The real problem of the global supply-demand imbalance has started to really manifest itself in prices. As production continues relatively unscathed, storages are filling up by the day.” Dickson’s colleague Bjornar Tonhauge, Rystad Energy head of oil markets, added.
Citi analysts led by Eric Lee agreed with Tonhauge in a note to clients Monday. “Even as OPEC++ oil production cuts are set to kick in May 1, and supply and inventories should tighten significantly in 2H′20, the next 4-6 weeks are seeing severe storage distress, likely to drive wild price realizations and unusual disconnects, including supercontango and negative prices,” they said.