OIL Volatility index swelled to 500%
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rssOPEC debates possible May 10 meeting to discuss further cuts – report
OPEC hits the panic button
Let’s see how the market takes this news from the WSJ:
- OPEC debates possible May 10 meeting to discuss deeper production cuts
- OPEC delegates set to hold conference call today but call not aimed at making any decisions
The market has shrugged off the headlines at lest in June oil.
Oil market pandemonium is absolutely speculative, just a trading issue – Kremlin spokesman
Comments by Kremlin spokesman, Dmitry Peskov
The Kremlin is out with some remarks saying that negative oil prices is just a “trading issue” and that “this isn’t a reason for overly negative assessments of the current reality”.
Sure, sure. There’s no doubt they’re feeling the pinch. Even if prices aren’t settled in negative, the plunge yesterday and today won’t give them any comfort whatsoever.
The headline is basically a leaf out of the OPEC playbook. If prices go down, it is purely speculation. If prices go up, it is because the market is agreeing to the “fundamentals”.
WTI June futures fall below $20
The front month May contract is still negative at -$1.82
It’s pretty much a slippery slope once again, after what we saw with the May contract when the $20 level gave way. It’s stunning to see the contango but much like how it always settles itself, the far end is chasing the front end it would seem.
These are unprecedented times in the market and one would think that a fall into the single digits here would be too obvious a play.
But on the other hand, if there are people paying to unload oil at settlement like we saw yesterday, it’s hard to make sense of why prices should just switch to $20 tomorrow.
A great black swan.
Saudi Arabia, OPEC are considering cutting oil output ASAP, not waiting until May
The headlines on this were a out earlier, but details were sparse, adding more now:
- Saudi Arabia and other OPEC members are considering cutting their oil output ASAP
- Not waiting until next month (in May OPEC’s recent production agreement with the US and Russia expires)
- “Something has to be done about this bloodbath,” said a Saudi official familiar with the matter. “But it might be a little bit too late.”
via the Wall Street Journal, link here may be gated.
There is still another shoe to drop in oil
It’s all about the ETFs
It’s all about oil ETFs now.
Retail money was flooding into oil ETFs today — particularly USO — on the belief that they were buying oil at $1 or -$10 or whatever the lows were.
They didn’t realize they weren’t buying May oil. They were buying June, which is trading at $21.12.
What’s worrisome is that the USO ETF now owns a large portion of the June contract. Coming into the day it was around 30% but there are signs it could be even more today. The ETF filed today to authorized an increase to shares outstanding to 4 billion. That’s after a surge above 1 billion since March and from 120 million at the start of the year.
That chart will be updated again tomorrow and we’ll get a better idea.
In all likelihood, retail traders have continued to pile into USO and other oil ETFs. At some point they’re going to throw in the towel or something is going to go wrong at the ETF itself. At one point today it was trading at more than 10% above net asset value.
Funds in trouble
The other thing to watch out for is funds blowing up or even problems at the CME. Oil is traded with high levels of margin. Even though most specs would have moved to June, there were still good flows in May and someone is clearly on the wrong side of that. We need to find out who was holding the bag.
Physical oil prices go negative at several US delivery points and grades
The latest numbers are up
If you’re new to oil, there are delivery points for crude all over the world and in the US. They often trade on spreads to WTI but those can vary and disconnect.
These were updated a few minutes ago:
- Alaska north slope -$3.47/barrel
- Bakken UHC -$2.97/barrel
- Bakken Guernsey -$1.97/barrel
The high in the continent is Heavy Louisiana Sweet at $13.53, down $7.74 today.
On March 17 with oil at $28 I wrote: There is a very real possibility that oil goes to zero …they were laughing then.
CME says oil futures can trade negative as May prices hit $5.50/barrel -Anirudh Sethi (Our Target of $ 6 is too done )
Open interest is still 108,000 contracts
The CME says oil futures can trade in negative territory. We’re not too far away now with the May contract hitting $5.56 now in an absolutely catastrophic rout.
To be sure, there is more volume in the June contract but I’d also point out that this is the real volume because it’s crude for delivery. If you’re holding an oil contract tomorrow at the close, you’re taking delivery of that oil.
This drop right now says that no one wants that oil.
I don’t understand how June can be at $22.40. That’s a testament to suspension of critical thinking.
WTI extends decline to 40%, Canadian physical oil goes negative -Anirudh Sethi
The physical damage is even worse than futures
May WTI crude is now down $7.42 to $10.85 — a drop of 40.6% on the day. It’s the worst day ever for a crude contract. The June contract is also now down $3.28, or 13.1%, to $21.76.
Both of these numbers flatter what’s happening in the North American physical market. There are various delivery points that are cushioned by non-nonsensical retail buying in oil futures. Some of those delivery points are also in spots where it’s difficult to move crude. Here’s a sampling of current prices:
- Bakken UHC $2.36/barrel
- Alaska North Slope $1.86/barrel
- WTI Midland $14.11/barrel
- Edmonton mixed sweet -$0.43/barrel
- Edmonton C5 condensate -$4.68/barrel
It’s all about that May contract today and tomorrow as we find out what the market for physical delivery looks like but the June contract is also increasingly ugly as it approaches the cycle low. So far retail keeps buying the dip but I think there’s a rising chance they puke it in the days ahead:
