Well, that was one ugly May contract for U.S. crude oil.
After crashing more than 300 percent to -$37 on Monday, the May West Texas Intermediate (WTI) crude futures rebounded 124 percent to settle at around $10 per barrel. But that does not mean the industry is about to sing “Happy Days Are Here Again.”
The June WTI futures contract plummeted $8.77, or 42.93 percent, to $11.66 a barrel. This is the lowest level in 21 years.
Will June suffer the same fate as May and plunge into negative territory? The analysts say that it is unlikely because global supplies are beginning to gradually rebalance due to producers cutting output. But the main focus is on demand and if the end to the coronavirus lockdown will stimulate growth in the industry.
In a move that would normally boost markets, President Donald Trump tweeted that he has instructed Treasury Secretary Steven Mnuchin to come up with a financial relief package for the energy industry. This will not help matters since it would prevent them from taking the actions necessary to raise prices.
Plus, OPEC+’s production cut of 9.7 million barrels per day (bpd) was not enough to satisfy investors. Figures suggest that demand is falling by as much as 30 million barrels bpd.
The U.S. government is looking to purchase about 75 million barrels of oil to add to the Strategic Petroleum Reserve.
The blood bath is likely to continue at least for another month. You may not even be able to buy the U.S. Oil Fund (USO) since the exchange-traded fund (ETF) has stopped creating new shares due to the oversupply and lack of storage facilities.
Until then, storage levels will still exceed capacity and ships with travel the seas with nowhere to go.
Wait a minute…what happened to Peak Oil? Wasn’t the world supposed to be out of oil by now?
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