When last night the media overwhelmed with panic headlines that the cost of May WTI crude oil futures did not just drop to the dollar per barrel, but “at the moment” did reach negative values at all, this amazing news remained a real sensation only for the so-called general public , closely watching the commodity markets not watching. Because of any potential potential, we emphasize any! - the degree of volatility of the markets for the period “before the May performance” for these futures, probably, only the very lazy of the exchange analysts did not warn: thanks to Saudi Arabia for the March dispersal of the offer.
Largely due to which paper futures specifically for May oil were, among other things, so many splattered that by May, against the background of a wild drop in demand, they simply inevitably had to become toxic - and it was kind of silly to not understand. Therefore, by the way, partly the fulfillment of the agreement to reduce production by the OPEC ++ formula was assigned by the participating countries precisely at the beginning of May: the exchange “meat” expected in April for May futures looked, if not inevitable, then at least quite probable. Well, here we are in the current moment and observe it - nevertheless, as it turns out, the inevitable. But quite clearly, fortunately, limited in time interval. Therefore, there is no reason to fight him at least somehow, but you just need to survive.
However, let's take it in order.
So, if you look at yesterday’s dynamics, then for the first time in history the price of the American WTI variety fell to negative values. Already at the opening of trading on the New York Mercantile Exchange, West Texas oil was trading up to minus $ 2 per barrel. Well, at a minimum of trading, the cost of the May WTI futures reached minus $ 40.32 per barrel, and this was absolutely unthinkable and most recently simply impossible beauty.
At the same time, along with this negative price, futures for the same West Texas oil, but with delivery in June, continued to calmly bargain at a price somewhere around $ 20-21 per barrel. That even if it goes about 15% below the level at the close of the market last Friday, but it is somehow more like reality, in contrast to negative values.
And first of all, it makes sense for the nervous public to exhale a little: all these negative price exchange games do not mean that someone, for example, will come to Siberia, happily pump out all our oil, transfer, say, to Ukraine, yes also make you pay for it. It’s just that it’s very important to understand that oil CFDs are not oil, they are such cunning securities that do not specifically provide for the presence of living oil in the transaction. And their value is not the cost of oil at all. And in this particular case, this generally only means that someone is trying hard to get rid of paper lots for the supply of at least paper oil with the closure of the transaction in the inexorably approaching May of this month. Which must be closed somehow, and because of this they suddenly became toxic for the owners. But these are exclusively their problems: and it was not necessary to disperse this paper American cart with such exceptional speed.
Well, the unprecedented negative prices “at the moment” are explained, in general, even simpler: just by the fact that this current Tuesday will be the last day for the sale of these May futures.
And then begins a specific meat grinder, such a classic for exchange speculators, under the distribution of which, in general, no one would like to get into. But have to.
In a word, everything seems to be quite expected and regular, if not for one but. As we have already shown above, long-term oil futures already take into account the OPEC ++ deal and the predicted recovery in demand (China is already actually entering an acceleration of the economy, a decrease in the quarantine level and an increase in demand for oil are expected in Europe, for example, in Germany).
But the WTI grade is West Texas oil, it is primarily the United States.
And there, firstly, with the economic recovery after the coronacrisis and, accordingly, with the restoration of demand, as girls of a certain age write on social networks, everything is still complicated. Very unpleasant statistics come from the USA even on March, and it’s rather unpleasant to look into the future anyway.
Well, and secondly, you can’t even play classically arbitrage there (buying + storage + selling in growing markets): the storage facilities in the USA are already in fact full and the markets simply cannot understand this. And because, in fact, in general, there is a feeling that the rapid and virtually simultaneous collapse of West Texas oil is a completely local and paper (and purely American) story. Due to fairly specific circumstances prevailing in this particular region and at certain sites, with only one specific position. And if it’s completely cynical, then if anyone suffers from this collapse of the CRD of the West Texas standard, these are some speculators who have gone too far. Well, maybe also American shale trailers, for which, in fairness, quotes were already falling record-high.
And now, perhaps, it’s all a disaster.
And now the main question is: will this local story with WTI pull other varieties down, namely the Mediterranean Brent and our Russian Urals?
Well, in the short term, at the level of volatility, yes, of course, it can pull it: as experts say, it may break through up to $ 10 per barrel, but very short-term. Because - once again - with the demand in both Chinese and European markets, which are the main consumers of Brent and Urals, there is already some certainty. Somewhere better, somewhere worse, but overall the picture is approximately clear.
And that’s why it’s pretty clear what we now have to expect as a country that is one of the leading oil producers, provided that for us the main sales are Europe and China, and the energy markets, as we see from the collapse (albeit, sure, temporary) North Texas oil CFDs are becoming regional even faster than any others. And here everything is simple: in these conditions we still need to wait for the high volatility to remain and be ready for it (including mentally).
That's basically it.
In the near future, oil quotes, there is no doubt about this, will continue sharp fluctuations at current levels, given the high degree of uncertainty prevailing in the global economy.
But on a farther horizon, the mechanism of a recently concluded transaction according to the OPEC ++ formula, which, recall, in fact, starts to be executed from the beginning of May, will already start to work.
And demand will come out of a coma: quarantine measures are gradually weakening already in most European industrialized countries.
However, most likely (President Trump spoke about this, in particular, at the White House briefing at night), and the fall in WTI oil prices is also a fleeting phenomenon. Which, by the way, according to the American president, which is difficult to disagree with in this situation, is caused by the fact that "this is more a financial issue than the oil situation." And yes, this drop in the price of May WTI futures is due primarily to “financial pressure” - here Trump is also, in our opinion, absolutely right.
But only in that model of collapse, into which the US economy can now, for completely objective reasons, fail, we, unfortunately, still cannot understand it, this “pressure”, depth.
Well, and so, of course, in the main topic of this story it is difficult to disagree with Donald Trump and with another analyst, perhaps the best in the history of mankind. Once upon a time, they precisely formulated, albeit a little differently: “Everything passes, and this too will pass.”
The author’s point of view may not coincide with the position of the publisher.