Negative Oil Prices

Crude oil prices have seen record moves this week as the capitulation in concerns for the demand outlook resulted in a downside shock with prices breaking below $0 for the first time on record. Printing lows of -$37.63 on Monday at the worst of the decline.

The dramatic sell-off comes on the back of recent disappointment at the OPEC+ deal agreed between OPEC and a group of non-OPEC nations led by Russia. Despite initial expectations that production cut be cut by as much as 15 million barrels per day, the group was only able to hash out a 9.7 million barrel cut per day, with Mexico dragging its feet in agreeing. With Saudi Arabia having flooded the market with excess oil over the last month, while US crude production has remained at elevated levels, the market has trended steadily lower.

Demand Collapsing

The ongoing COVID-19 crisis provided to be the final straw for oil demand which has fallen off a cliff in light of the widespread lock-downs around the globe and the massive travel restrictions in place. With a near total loss of demand from the aviation sector, as well as a huge loss in general industrial demand, demand from shipping and a loss of gasoline demand, oil prices have been in free-fall.

While the sell-off on Monday was due to traders rolling their futures positions on the May contract into the front month, the scramble to avoid taking physical receipt of the oil highlights the total absence of demand for oil currently, posing very worrying questions about the trajectory of the global economy.

EIA Reports Further Inventories Build

On Wednesday, the EIA released its latest update on US oil inventories, reflecting yet a further surplus of 15 million barrels. With US storage capacity nearly full, refiners are having to cut activity there. Still, with US crude production only being reduced by 100k barrels a day per month, still sitting at over 12 million barrels a day, the current oversupply looks set to continue. Focus will now turn back to OPEC and whether the group will be able to agree a much larger set of production cuts to address the supply glut.

Technical Views

WTI (Bearish below 17.10)

From a technical viewpoint. The sell-off in oil was reversed the next day with price gapping back into positive territory. At $14.80 however, price is still very subdued and further losses cannot be ruled out while the 17.10 level and bearish trend line provide resistance in line with bearish VWAP.

The Crude Chronicles - Episode 35

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Share this post: