On Tuesday, April 21, trading in the global energy market is accompanied by a sharp drop in world oil prices. In the middle of the day, the cost of Brent crude futures for delivery in June fell by almost 30% to $ 18.27 per barrel. The value has become the lowest since January 2002. At the same time, June futures for raw materials of the American brand WTI became cheaper by more than 40% - up to $ 11.8 per barrel.
The market maintains negative dynamics after the historical collapse of quotations the day before. So, on April 20, the price of WTI oil for the first time in the entire trading period - since 1983 - dropped to negative values. The contract for the supply of American raw materials in May fell by 300% - from $ 18 to minus $ 37.6 per barrel.
On the morning of April 21, quotes briefly gained plus and recovered to $ 1.65, but already in the afternoon they again fell below zero - to minus $ 8 per barrel. However, then they strengthened a bit, settling at around $ 5. This is evidenced by the New York Mercantile Exchange (NYMEX).
“You need to understand that exchanges are platforms where they trade in securities, not physical goods. At the same time, most traders do not need a physical supply of oil at all. They only buy and sell contracts. As a result, traders who bought earlier May futures faced a dilemma: either get the actual volume of crude oil under contracts, which they do not need at all, or arrange a sale of futures, which happened, ”explained Yuri, head of data analysis department at CEX.IO Broker, Yuri Masuria
Moreover, the May WTI oil futures expire on the evening of April 21. After this point, contract holders will be required to accept oil supplies in May. However, the American oil storage facilities were completely full, which made it impossible to obtain a new product. About this in a conversation with RT told EXANTE managing partner Alexei Kiriyenko.
“Futures, which was not sold before the deadline, obliges to receive physical oil. However, the largest oil storage facility in Cushing, Oklahoma, is fully occupied. Holders of oil futures contracts faced with a situation where there is nowhere to store oil and no one to give, and as a result they had to pay extra just to get rid of the contracts, ”Kiriyenko explained.
After traders began to pay extra for canceling the futures, the value of the contract itself on the exchange became negative.
Excess Barrels
Analysts connect the fall in WTI quotes below zero and the full load of oil storage facilities with a collapse in global demand for hydrocarbons. The coronavirus pandemic and quarantine measures in many countries of the world provoked a massive reduction in trade, passenger traffic and fuel consumption. Thus, as Alexey Kiriyenko explained, there was nowhere to ship oil.
“In particular, Royal Vopak NV, the world's largest commercial oil storage operator, has already announced that all capacities in all terminals are already occupied. Almost all sea tankers are also full, ”the expert added.
According to experts from the International Energy Agency (IEA), in April, global oil demand will fall by 29 million barrels per day and will reach its lowest level since 1995. To combat an overabundance of oil in the global market in mid-April, the OPEC + parties renewed their cooperation and agreed to reduce the production of crude by 9.7 million barrels per day.
- Minister of Energy of the Russian Federation Alexander Novak
- RIA News
- © Maxim Blinov
Moreover, as stated by the head of the Ministry of Energy, Alexander Novak, a number of states that are not members of OPEC + (USA, Norway, Argentina and Canada) can further reduce production. According to the minister, as a result, the total volume of reduction in production by world exporters of raw materials may reach 15-20 million barrels per day.
Meanwhile, the declared reduction in oil production may not be enough to balance the market and maintain prices. This point of view in a conversation with RT was expressed by the portfolio manager of QBF Denis Ikonnikov.
“To normalize the situation on the oil market, a significant reduction in oil production is necessary. According to various estimates, in April-May, demand for raw materials will fall by 25-35 million barrels per day. Thus, the oil deal, in which the reduction in production is 20 million, will not be enough. In this regard, oil prices will remain under significant pressure in the short term, ”the analyst explained.
Looking back to quarantine
As expected, the observed collapse of Brent and WTI quotes could provoke a sharp reduction in the price of Russian Urals oil. Meanwhile, experts surveyed by RT do not yet expect a drop in prices for domestic raw materials to negative levels.
“Lowering prices to negative levels does not yet threaten Brent and Urals. Futures for the Russian Urals grade are virtually not traded on the stock exchange, and the price of Urals supplies is calculated daily as a derivative of the North Sea Brent oil. Of course, the prices of the June Brent and Urals futures will also drop, but not to a negative level, ”said Yuri Mazur.
Note that on Monday, Urals oil was trading above $ 17 per barrel. Such data are provided by the analytical agency Argus.
In general, the experts surveyed differently assess the further dynamics of world oil prices. According to RT, a leading analyst at 8848 Invest, Viktor Pershikov, already in the II – III quarter of 2020, quotations of the Brent benchmark could partially recover and rise above $ 30 per barrel. At the same time, the analyst does not expect prices to rise to $ 45 per barrel in the foreseeable future.
However, according to Yuri Mazur, the situation in the global energy market will largely depend on the dynamics of the distribution of coronavirus. Thus, a possible easing of the pandemic and the removal of quarantine restrictions may again lead to an increase in fuel demand.
“At the end of May, perhaps, the ban on international flights will be lifted, there is a potential for the restoration of industry, which means that oil consumption will begin to increase. Most likely, in late spring, oil prices will gradually increase and reach the level of $ 33-37. But there is no need to wait for a full price recovery at the level of December 2019 this year. Most likely, by the end of the year, the oil market will be unstable, and the value of futures contracts will fluctuate between $ 35–55, ”the expert concluded.