This week in our global markets podcast, we turn our focus on last Monday’s WTI crude futures crash. As always, we join our esteemed analysts Gaurav Kashyap in Dubai and Mark Lee in London to break down market expectations going forward.
For the first time ever, the May WTI futures contract was trading in the negative zone last Monday closing at -$37 per barrel. In essence, this meant that crude sellers were paying buyers to take their stock.
Mark opines that the thin liquidity in WTI May contracts ahead of Tuesday’s expiry was due to supply surplus occasioned by a shortage in storage. In addition, the OPEC+ supply cut is not enough to mitigate the slump in demand thus fueling the decline.
On the other hand, Gaurav believes that the crash may reoccur as demand is low, and storage at Oklahoma at 70% occupancy with the June contracts expiring on 19th May. The Cushing facility nears full storage, it has a capacity of 80 million barrels and currently has 70 million thus the remainder will be unable to absorb surplus crude. The decreasing availability in storage may be fueling panic in the WTI June contracts.
In addition, WTI contracts requiring physical delivery implies that speculators may have to trade their positions at any price provided they avoid physical delivery. Oklahoma facility is landlocked thus logistics headache.
On the contrary, Brent crude futures contracts have remained relatively stable since brent is cash exchanged, closer to the sea thus has flexible storage and accessible transport.
ECONOMIC CALENDAR
- •Tuesday – BOJ economic decision
- •Wednesday – US weekly crude inventories, FOMC rate decision
- •Thursday – ECB interest rates
- •Friday – UK manufacturing PMI, ISM manufacturing US
KEY CORPORATE EARNINGS RELEASES IN THE WEEK
- •Wednesday – Boeing, Facebook, Tesla, and Microsoft
- •Thursday – Twitter, Amazon, and Apple
