Demand exhaustion and oil storage capacity are in urgent need

category:Finance
 Demand exhaustion and oil storage capacity are in urgent need


(above is the daily candle chart of the latest year of WTI crude oil futures price in June in the United States. The time on the chart is the eastern time of the United States; source: Huitong finance and Economics)

WTI contract fell to negative value in May due to exhausted demand and urgent oil storage facilities

Phil Flynn, an analyst at pricefutures group in Chicago, said that the inventory was too full for speculators to buy the contract, and the capacity utilization rate of the refinery was at a low level, because the home order in most states had not been cancelled yet, and there was little hope of change within 24 hours.

Real demand for crude oil has dried up, creating a global oversupply as billions of people stay at home to slow the spread of the new coronavirus.

Refineries process much less crude than normal, so hundreds of millions of barrels of crude oil pour into storage facilities around the world. Trading banks charter ships just to store excess oil. A record 160 million barrels of oil are stored on tankers around the world.

Crude oil contract trading in the US was more active in June, closing at $21.22, much higher than the contract price in recent months. At one point, the price difference between May and June contracts widened to more than $60 per barrel, the largest in history for two neighboring months.

John Kilduff, a partner at again capital LLC, a hedge fund, said it would normally be a misapplication of stimulus to the global economy, which would normally help GDP grow by an additional 2%. At the moment you dont see the savings because people dont have fuel spending.

Due to a lack of demand for physical oil, investors pulled out before the may contract expired late Monday. When a futures contract matures, the trader must decide whether to accept physical delivery or to extend his position to a distant contract.

Normally, this process is not complicated, but this time, few people will buy these contracts from investors and carry out delivery, because the oil storage space of Cushing, Oklahoma, the delivery place of US crude oil futures is rapidly decreasing.

Cushing is the physical delivery place of US crude oil futures. Four weeks ago, Cushings oil storage facilities were still half full, and now 69% are in use, according to the U.S. Department of energy.

Andy lipow of lipowoil associates said that it is clear that Cushings oil storage space will be exhausted and will remain at full capacity in the next few months. Due to the slow production reduction of oil producing countries, we see a large number of crude oil looking for a foothold globally.

Market analysts quoted a report from genscape on Monday that Cushings crude oil inventory increased by 9% for the week ended April 17, totalling about 61 million barrels.

The scale of production reduction is far below the level of demand decline

The worlds major oil producers agreed to cut production by 9.7 million barrels per day in an attempt to control global supply in the face of falling demand, but these cuts will not be implemented until May. Saudi Arabia is in the process of shipping oil, including large-scale shipments to the United States. The global oil consumption is about 100 million barrels per day, and the supply remains at this level in general. But global consumption has fallen by about 30% so far, and the scale of production reduction is far below that. [disclaimer] this article only represents the authors own opinion and has nothing to do with Huitong. Huitong.com is neutral in its statements and opinions, and does not provide any express or implied guarantee for the accuracy, reliability or completeness of the content contained herein, and does not constitute any investment proposal. Please refer to it for reference only, and bear all risks and responsibilities on its own. Source: editor in charge of Huitong: Zhong Qiming

The worlds major oil producers agreed to cut production by 9.7 million barrels per day in an attempt to control global supply in the face of falling demand, but these cuts will not be implemented until May. Saudi Arabia is in the process of shipping oil, including large-scale shipments to the United States.

[disclaimer] this article only represents the authors own opinion and has nothing to do with Huitong. Huitong.com is neutral in its statements and opinions, and does not provide any express or implied guarantee for the accuracy, reliability or completeness of the content contained herein, and does not constitute any investment proposal. Please refer to it for reference only, and bear all risks and responsibilities on its own.