A month after sellers had to pay about $ 40 a barrel to get rid of US oil futures, the next situation will appear on Tuesday after the end of the June contract, and so far there is little indication that the historic decline will recur.
The degree of damage caused by the coronavirus pandemic to the oil industry came to the agenda on April 20, when the U.S. benchmark WTI CLc1 contract fell to minus $ 38.
Since billions of people stopped traveling, fuel demand has decreased so much that there is almost no place to store oil. So, the day before the end of the May contract, stuck investors had to settle payments.
A month later, global travel restrictions are slowly disappearing and there are signs that demand has improved, although slowly. Oil prices have improved, US crude oil rose above $ 30 a barrel on Monday, reaching its highest level since March 16.
As oil producers around the world reduce production rapidly, the pressure on storage is lessened. US data this week showed that crude inventories were falling.
The collapse of the May delivery threatened a benchmark that has provided the industry with an invaluable price discovery and risk transfer tool for 37 years. Among those affected were investors in WTI-based derivative contracts traded on remote exchanges such as China and Russia.
According to the data, another factor that can help prevent recurrence of this month’s crisis is that stocks in Cushing started to decrease as 3 million barrels last week. This creates some room for those who are achieving the June contract.
In the physical markets, the actual oil purchase and sale forum slowed down before the end of the activity, considering the futures contracts. Physical deals are often priced by criterion (WTI), and traders do not want to experience any volatility before the expiration date.