US crude futures contracts for May collapsed below zero for the first time in the history of the commodity markets as sellers were paying buyers to take the oil as they have nowhere to store it. May Contract expire today!
According to data compiled by Bloomberg, West Texas Intermediate futures for May slumped by 245% to negative $26.58 as a recent production cut agreement failed to turn out to be deep enough to prevent supplies from overwhelming storage facilities. Data compiled by IG Index show the June WTI futures were down by 14% to $21.22, and its international counterpart, Brent, was also lower by 6.6% to $26.22.
Just hours after USCF investments, the managers behind the largest oil ETF announced a 1-for-8 reverse stock split, moments ago the USO - which was briefly halted - unveiled yet another shift to its composition to relieve pressure on the June WTI Futures, and to spread the pain among even more forward months. Specifically, the USO announced that it would reallocate as follows:
June: 40% down to 20% July: 55% down to 50% August: 5% up to 20% Sept: 0% up to 10%
Why is the USO doing this? To avoid a repeat of the May WTI implosion, and to prevent a crash on May 19 when the June WTI contract expires.
Oil rose on Thursday, spurred by rising tensions in the Middle East, output cuts by producing nations to tackle oversupply and the promise of more government stimulus to ease the economic pain of the new coronavirus pandemic.
Brent crude was up $1.53, 7.5%, at $21.90 a barrel by 0822 GMT. U.S. crude rose $1.53, or 11.1%, at $15.31 a barrel.
Oil prices have suffered one of their most tumultuous weeks ever. The expiring front-month U.S. contract on Monday fell into negative territory for the first time as traders paid buyers to take crude off their hands given a lack of storage space for the current supply glut.
So far this year, Brent has lost roughly two thirds of its value.
The now-defunct May West Texas Intermediate crude US:CLK20, which expired on Tuesday, plunged into negative territory to start the week in a history-making event that saw, the front-month contract, at the time, settle at negative $37.63 a barrel before recovering some of that in the following session.
That jaunt into negative territory had never happened before that period and although the oil market was seeing some traction higher on Wednesday, with the current front month and most-active West Texas Intermediate crude for June delivery CLM20, 23.37% gaining $2.21, or 19.1%, to settle at $13.78 a barrel on the New York Mercantile Exchange, still about the lowest level since the late 1990s, researchers at Deutsche Bank thought it would be interesting to look at oil prices over the past 150 years.
Strategists Jim Reid and Nick Burns did so with straightforward charts published April 22 that shows both the nominal price of oil since 1870 and the cost of crude in real, or inflation-adjusted, terms in U.S. dollars (follow the above link to see charts)
Crude-oil prices jumped Thursday, extending a string of wild moves that are ricocheting across financial markets and roiling the global energy industry.
While prices have clawed back ground over the past two sessions, oil now trades at a fraction of where it started the year and is well below levels that make it profitable for companies to produce. The longer most of the world practices social distancing due to the coronavirus, the bigger the global glut of crude grows.
Many analysts are skeptical that the large percentage rebound from the past few days will persist, noting that such big gains tend to cluster around long-term declines. Traders are bracing for more gyrations in the coming weeks.
U.S. crude-oil futures for delivery in June rose 20% to $16.50 a barrel Thursday. The benchmark started the year above $60 and is still near its lowest level in more than two decades. Brent crude futures, used to set prices for oil throughout global energy markets, rose 4.7% to $21.33 a barrel.
Helping prices regain some lost ground: signs of a recovery in demand for oil in China, which is emerging from coronavirus lockdowns, and tensions between the U.S. and Iran. The two nations engaged in a new round of antagonism Wednesday, when Tehran said it had launched its first military satellite into space.
Earlier in the day, President Trump threatened to destroy Iranian boats that harass the U.S. Navy, boosting oil prices. Such barbs can lift crude because traders are very sensitive to tensions in the region that could disrupt the movement of oil through the Strait of Hormuz, a vital shipping channel for tankers.
"When you look at China, road traffic and refinery operations are back up," said Norbert Rücker, head of economics at Swiss private bank Julius Baer. "Don't forget the geopolitical side, too."
Thursday's advance continues a period of outsize moves in oil that is rippling to stock, bond and currency markets. Investors are concerned that damped spending, bankruptcies and layoffs in the energy industry could make the economic damage from the coronavirus pandemic even more severe.
The price of the most actively traded U.S. crude futures contract has moved up or down about 10%, on average, on each trading day since the start of March. That compares with an average move in either direction of 1.5% in 2019 as a whole, according to FactSet data.
Many analysts are still reeling from Monday's chaos in oil. That day, a futures contract for delivery next month tumbled below $0 a barrel, a first in crude-market history. The plunge meant traders effectively had to pay buyers to take oil off their hands due to a lack of available storage for crude around the world.
That futures contract expired in positive territory on Tuesday, but analysts are wary of a repeat with supply overwhelming demand. Traders say investors unfamiliar with oil markets were likely stuck holding some of the May futures contracts near expiration, not realizing that they would either have to sell them or accept delivery of physical barrels that -- with storage full -- likely would have nowhere to go.
That allowed counterparties on the other side of the trades to send futures prices plunging well below $0.
"It was the perfect storm," said Donald Morton, a senior vice president at Herbert J. Sims & Co. who oversees an energy trading desk in Haverhill, Mass.
Global inventories also continue to climb, highlighting the growing glut collapsing the market. U.S. stockpiles rose 15 million barrels last week, Energy Information Administration data showed Wednesday, continuing a series of large increases. Many analysts project inventories to break through record levels in a matter of weeks and near capacity.
As a result, many investors expect more big oil-price swings ahead. One gauge of how volatile U.S. crude prices are expected to be over the next 30 days, the Cboe Crude Oil ETF Volatility Index, has risen roughly 730% this year to its highest level on record.
Like the better-known VIX gauge that tracks volatility in the stock market, the index uses options prices to calculate how far traders are expecting prices to move over the next month.
The oil-volatility options aren't tied to oil futures prices directly but instead to United States Oil Fund LP, an exchange-traded fund that aims to match U.S. crude prices. The fund recently accumulated a huge position in the futures market, thanks to a rush of cash from individual investors.
Analysts say some of those individual investors likely weren't aware how the fund works, adding to the chaos in recent weeks.
Some market watchers now expect the mounting losses and Monday's historic drop to dissuade investment in the sector.
"We're getting close to the point when people just stop trying to buy this," said Marwan Younes, chief investment officer at hedge fund Massar Capital Management.
Write to Joe Wallace at Joe.Wallace@wsj.com, David Hodari at David.Hodari@dowjones.com and Amrith Ramkumar at amrith.ramkumar@wsj.com
As the United States pressed Saudi Arabia to end its oil price war with Russia, President Donald Trump gave Saudi leaders an ultimatum.
In an April 2 phone call, Trump told Saudi Crown Prince Mohammed bin Salman that unless the Organization of the Petroleum Exporting Countries (OPEC) started cutting oil production, he would be powerless to stop lawmakers from passing legislation to withdraw U.S. troops from the kingdom, four sources familiar with the matter told Reuters.
The effort illustrated Trump’s strong desire to protect the U.S. oil industry from a historic price meltdown as governments shut down economies worldwide to fight the virus. It also reflected a telling reversal of Trump’s longstanding criticism of the oil cartel, which he has blasted for raising energy costs for Americans with supply cuts that usually lead to higher gasoline prices. Now, Trump was asking OPEC to slash output.
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