WTI crashed below $20 (tagging $19.20) overnight after API reported huge inventory builds and was not helped by comments from the International Energy Agency that a historic production cut deal won’t be enough to counter a record demand slump this year.
This appears to confirm a key gauge of the oil market’s health which is at its weakest in more than a decade as supplies build and futures contracts roll over. West Texas Intermediate crude for May delivery traded at more than $7 a barrel below its June contract on Tuesday, the deepest contango since 2009. The May contract is nearing expiration and exchange-traded funds, including the United States Oil Fund, have been selling front-month contracts and buying second-month futures.
Simply put, this is an indication of extreme oversupply.
“At least over the next month or so, before these cuts have an opportunity to kick in, we are going to be very stressed on inventories,” Bart Melek, head of commodity strategy at TD Securities, said by telephone.
And so all eyes are once again on the inventories for any positive signs…
- Crude +13.143mm (+10.1mm exp)
- Cushing +5.361mm
- Gasoline +2.226mm (+7.1mm exp)
- Distillates +5.64mm (+1.8mm exp)