As Mike McGlone, a senior commodity strategist at Bloomberg intelligence, wrote, there is no place for us oil futures to take a higher than normal open position in May, but if history is any guide, it is likely to mark an extreme.
As of April 17, there were more than 100000 open positions in May contracts, well above the five-year average of about 60000. Whats more surprising is that US crude oil futures contracts in May 2020 will be delivered at 2:30 p.m. on April 21, but usually only about 2000 contracts will be delivered. This time we see 100000 contracts, or about 100 million barrels of oil. The question, of course, is where all this oil will be delivered in a world where commercial oil stocks will run out as soon as next month?
Suppose the April contract finds storage space. This led to the June contract, which currently costs about $21.51. Open positions are about 500 million barrels of oil equivalent. While we expect most of this to push up the forward water curve, it still means the world will see thousands of barrels of oil delivered next month, and the question arises again: where will all this oil be delivered?
The unfortunate answer is that oil producers will have to bear billions of dollars in losses from production cuts. This leads us to the tragic (if accurate) conclusion of the energy executive of the Financial Times: this is a huge economic tragedy unfolding.
This crisis will destroy so many livelihoods and jobs. No matter what people think of the oil industry - there are many obvious reasons why the world needs to reduce oil consumption - this is a huge economic tragedy unfolding.
Source: responsible editor of financial website: Wang Xiaowu NF