The oil markets witnessed one of the most extraordinary trading days in the history of any commodity as WTI settled deep into negative territory as holders of futures were willing to pay money to avoid having to take delivery.
While Brent futures settled $2.52 lower to settle at $25.57 a barrel, the expiring WTI crude futures contract plunged $55.90 to -$ 37.63 barrel. The June contract, which, while weak, still ended the day at more than $20 a barrel.
Yesterday’s trading is historic but, we believe that this is related to the expiry of the WTI May contract today. Traders desperate to avoid having to take delivery of oil against their derivative positions sold the contract in a series of waves.
As sudden as the day’s declines were, it was weeks in the making. The coronavirus pandemic cut fuel demand worldwide by roughly 30% beginning in early March, but for several weeks, the supply of oil worldwide has continued to build. Even the recent deal by OPEC and other major oil-producing countries to reduce supply will not be fast enough, nor large enough, to drain the millions of barrels of unneeded crude present in the markets.
That unwanted oil is instead going into storage, but in the United States, storage is filling much more quickly than anticipated. Cushing, Oklahoma, the tiny town of less than 10,000 people that serves as the main U.S. storage hub, was 70% full as of last week.
That realization sparked Monday’s sell-off in U.S. futures markets because of the technicalities of the West Texas Intermediate futures contract, which expires on Tuesday. When oil contracts expire, the holder has to take possession of 1,000 barrels of oil for every contract they own, delivered to Cushing. However, with Cushing filling up, that leaves traders with the unappetizing option of taking oil they do not want, or getting out of those positions. The mad rush for the door means there were few buyers, and the contract dropped from a normal price of $18 on Friday into unprecedented negative territory.
For the first few hours of trading on Monday, the May oil futures steadily edged lower. But with expiration on the way on Tuesday, the selling accelerated in the last two hours, with oil finally hitting negative territory roughly 20 minutes before the close of trading. Once that level was breached, sellers piled in, sending the contract at one point below negative $40 a barrel before a slight rebound ended what will go down as the worst day since the West Texas Intermediate contract was introduced in 1983.
At a global level, the death toll from the COVID-19 virus rose to 170,436 (+24,885 since last Thursday) yesterday, with the total number of confirmed infections at 2,481,287 (+298,464 since last Thursday). (Click here for details).
Asia’s naphtha crack was at a small discount of 27 cents to Brent crude, reflecting a dramatic spike versus a discount of over $16 a tonne on Friday.
The low naphtha prices have given petrochemical makers a much needed reprieve. However, intermonth spreads remained at a wide contango of $10.50 as ample naphtha supplies have yet to ease due to high volumes of the fuel coming to Asia next month from the West including Europe and the Mediterranean.
The May crack has improvded to -$1.40 / bbl.
Asia’s gasoline crack was at a discount of $5.42 a barrel, compared with a discount of $7.38 a barrel on Friday.
The May crack has improved to -$3.50 /bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Cash discounts for jet fuel were at $3.60 per barrel to Singapore quotes on Monday, compared with a discount of $3.50 per barrel on Friday.
The front-month time spread for jet fuel in Singapore remained in steep contango on Monday, to trade at a discount of $3.20 per barrel.
Scheduled airline global flying capacity for the week beginning 20 Apr’20 has broken below the 30 million seat mark at 29.8 million seats, a 7% fall in capacity on the week, with expected cuts by some major carriers yet to be announced, OAG said Monday.
Cash differentials for 10 ppm gasoil narrowed their discounts to $2.78 per barrel to Singapore quotes on Monday, compared with a discount of $2.84 a barrel on Friday.
The May crack for 500 ppm Gasoil has dropped to $6.20 /bbl with the 10 ppm crack at $ 8.50 / bbl. The regrade is at -$ 5.20 /bbl.
Click Here for a graphical depiction of Global Distillate stocks by region.
Ex-wharf and delivered premiums for both 0.5% VLSFO and 380-cst HSFO have firmed over the past week.
Worries over barge availability emerged as Hin Leong, one of Singapore’s largest bunker fuel suppliers by volume, began informing customers last week that it would suspend marine fuel deliveries amid mounting financial restructuring discussions at its parent company.
The May crack for 180 cst FO has eased further to -$2.75 /bbl with the visco spread at $1.10 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
No fresh trade for today
Hedge recommendations are essentially made for refiners. These are not trading positions as such. The rationale of these positions is to lock in extraordinary levels for the refinery.
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About this blog
This blog post attempts to give a top level summary of the Singapore market goings on to a person who seeks to obtain a directional sense of the market on a daily basis.