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The US Energy Information Agency (EIA) dissects the historic event.

“It’s not often that we’re served up a WTF moment like this,” I wrote on April 20, when the May contract for crude-oil benchmark-grade West Texas Intermediate (WTI) plunged to minus -$37.63 in a straight line, thus violating the WOLF STREET beer-mug dictum that “Nothing Goes to Heck in a Straight Line.” It was the first time in history that a US crude oil futures contract plunged into the negative. The peculiar dynamics that came together and caused this are expected to continue and some of them are expected to get worse over the next month or two. So here is the postmortem of this infamous day, by the US Energy Information Agency (EIA).

By the Energy Information Agency:

WTI crude oil futures prices fell below zero because of low liquidity and limited available storage.

On Monday, April 20, 2020, New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) crude oil front-month futures prices fell below zero dollars per barrel (b)—at one point, trading at -$40.32/b (Figure 1)—and remained below zero for part of the following trading day. Monday marked the first time the price for the WTI futures contract fell below zero since trading began in 1983.

Negative prices in commodity markets are very rare, but when they occur they typically indicate high transactions costs and significant infrastructure constraints.

In this case, the WTI front-month futures contract was for May 2020 delivery, and the contract was set to expire on April 21, 2020. Market participants that hold WTI futures contracts to expiration must take physical delivery of WTI crude oil in Cushing, Oklahoma.

…click on the above link to read the rest of the article…

Futures Plunge As WTI Crashes By Most On Record, Tumbling To $11 Per Barrel

April 20, 2020

Futures Plunge As WTI Crashes By Most On Record, Tumbling To $11 Per Barrel

Oil prices crashed the most on record with the May WTI futures contract hitting its lowest level since 1999, plunging as low as $11 or down 38%, as nobody wants to take actual physical storage amid widespread fears crude storage will soon be full; meanwhile companies prepare to report the worst quarterly earnings since the financial crisis, while tens of thousands of people continue to get sick every day with the coronavirus.

While Brent was only down $1.12, or 4%, at $26.96 a barrel on Monday morning, the carnage took place in the landlocked WTI, whose May contract fell $5.70 to its lowest since March 1998 though the sell-off was exaggerated by the contract’s Tuesday expiry because no one wants to be left long to take delivery as there is nowhere to put the physical product. In any case, the 37% drop was the biggest one-day drop on record!

“The May contract is set to expire tomorrow and the bulk of the open interest and volume is already in the June contract,” said ING’s head of commodities strategy, Warren Patterson. To be sure, the June contract, which is more actively traded, fell only $2.18, or 8.7%, to $22.85 a barrel, sending the prompt spread to a record $11/barrel.

Not helping oil was an interfax report that Russia increased oil output by almost 1% in the last 3-days. While the OPEC+ deal comes into effect on May 1st, Russia is not bound by the pact to reduce its output until then; and – it appears – Moscow is looking to make the most of the next 10 days, even if it means sending the front-end to zero.

…click on the above link to read the rest of the article…

WTI Extends Losses Below $20 After Record Surge In Crude Inventories

April 15, 2020

WTI Extends Losses Below $20 After Record Surge In Crude Inventories

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…

API

Crude +13.143mm (+10.1mm exp)
Cushing +5.361mm
Gasoline +2.226mm (+7.1mm exp)
Distillates +5.64mm (+1.8mm exp)

DOE

…click on the above link to read the rest of the article…

Oil Crashes To One Year Low, Brent Below $60 As Saudis Pump Record Crude

November 23, 2018

Oil Crashes To One Year Low, Brent Below $60 As Saudis Pump Record Crude

Update:

U.S. CRUDE EXTENDS LOSSES, TRADES DOWN MORE THAN $4 A BARREL TO SESSION LOW OF $50.63 A BARREL
BRENT FALLS BELOW $60/BBL FOR FIRST TIME SINCE OCT. 2017

* * *

The first time oil tumbled two weeks ago when it crashed by 7%, Goldman – which has been telling its clients to keep buying crude all the way down from $80 – blamed it on “negative convexity” and other arcane reasons because the far simpler explanation, more supply, less demand, would be just too obvious for its brilliant strategists not to notice.

There was no “negative convexity” – Wall Street’s catch phrase to “”explain anything that can not be otherwise explained -overnight, when oil resumed its plunge, sliding to the lowest in a year and dropping below $51 after Saudi Arabia signaled its output reached a record high, while growing U.S. inventories stoked fresh concerns over a global supply glut.

WTI futures dropped as much as 5.4% from the Wednesday settlement (there was no Thanksgiving settlement price) and were set for a seventh weekly decline, dropping as low as $51.62/barrel the lowest price in one year.

Brent dropped below $60/barrel for the first time since October 2017.

And with Iranian export restrictions lifted after Trump provided most of its clients oil import waivers, traders are now focused on growing risks of a new glut of crude: Saudi Arabia’s oil minister said Thursday production from the world’s largest exporter climbed further this month after a surge in October, and U.S. stockpiles have risen for nine straight weeks.

Saudi Arabia is producing oil in excess of 10.7 million barrels a day, more than in recent years, Energy Minister Khalid Al-Falih said, giving the strongest indication yet that the kingdom has boosted output to record levels.

…click on the above link to read the rest of the article…

WTI Tumbles On Biggest Crude Build In 19 Months

October 3, 2018

WTI Tumbles On Biggest Crude Build In 19 Months

Modest overnight gains following API’s data have been erased as DOE reports a massive surprise (biggest since March 2017) crude build…

“We’re right in the middle of refinery maintenance season and you’ll probably see a lot of demand coming offline,” says Michael Loewen, a commodities strategist at Scotiabank. “It might take a few market participants by surprise to see a larger build than what we are used to in crude oil inventories”

API

Crude +907k (+1.5mm exp)
Cushing +2.018mm (+800k exp) [Genscape +600k]
Gasoline -1.703mm
Distillates -1.197mm

DOE

Crude +7.975mm (+1.5mm exp) – highest since Mar 2017
Cushing +1.699mm (+800k exp) [Genscape +600k] – highest since March 2018
Gasoline -459k (+1.25mm exp)
Distillates -1.75mm

Massive crude build shocks the market…

Bloomberg notes that you can’t really pin this week’s huge crude build on refiners. Gross inputs were little changed and are the highest ever historically for this week.

US Crude production held at record highs…

WTI hovered risght around $74 ahead of the DOE data, then dumped…

Bloomberg Intelligence Senior Energy Analyst Vince Piazza warns that with WTI approaching $80 a barrel, we believe oil has moved too far, too fast, notwithstanding reduced Iran exports because of sanctions and declining production from Venezuela. Demand destruction remains a concern due to elevated prices and geopolitics. We also expect heightened hedging by U.S. E&Ps at current prices, while trade tensions, robust production and seasonal refinery maintenance in the U.S. add to the negative price outlook.

Oil Is Surging… And So Are Gas Prices At The Pump

October 1, 2018

Oil Is Surging… And So Are Gas Prices At The Pump

Brent Crude nears $85 as WTI tops $75 – at four year highs – as the tight oil markets continue to send gas prices at the pump to the highest in four years…

WTI is up over 2.5% today – spiking from $73 to $75 intraday – despite a report from Genscape that shows an 800k barrel inventory build at Cushing.

The FT notes that analysts said that frantic deal making by Asian buyers normally reliant on Iranian imports at an annual oil conference in Singapore last week indicated how tight the physical market was.

“The market is incredibly tight,” said Amrita Sen, founder of consultancy Energy Aspects, who noted that financial players were just realising the severity of the impact of Washington’s Iranian sanctions.

“People are distracted by various comments from [European] governments trying to set up alternative payment mechanisms, but the refiners and other companies dealing directly on the oil markets are saying it’s not worth the risk,” she added.

As AAA reports, despite gasoline demand dropping to 9.0 million b/d and inventories growing to 235.7 million bbl, according to the latest Energy Information Administration (EIA) data, the national gas price average has increased three cents on the week to land at $2.88 – a pump price not seen at the national average since mid-July.

“The last quarter of the year has kicked off with gas prices that feel more like summer than fall,” said Jeanette Casselano, AAA spokesperson.

“This time of year, motorists are accustomed to seeing prices drop steadily, but due to continued global supply and demand concerns as well as very expensive summertime crude oil prices, motorists are not seeing relief at the pump.”

Today’s national gas price average ($2.88) is the most expensive for the beginning of October since 2014. The average is four cents more than a month ago and 32 cents more than a year ago.

WTI Tumbles To $62 Handle After IEA Predicts “Explosive” US Shale Production As Oil Prices Surge

January 19, 2018

WTI Tumbles To $62 Handle After IEA Predicts “Explosive” US Shale Production As Oil Prices Surge

Update: The IEA report has impact prices – as would be expected – sending WTI back below the crucial support level of $63 once again…

With WTI Futures net long positioning at extreme longs, one wonders if $63 can hold.

* * *

Overnight, the International Energy Agency became the latest entity to recognize that 2018 is shaping up to be a pivotal year for energy production in US shale fields, and a showdown between OPEC and non-OPEC producers, namely those in the US.

According to the latest IEA report, US shale output is poised for “explosive” growth in 2018 as WTI trades at its strongest level since the summer of 2015, which in turn will unleash pent up US output, potentially leading to a sharp oversupply of black gold,

As Bloomberg notes, the IEA’s forecast supports OPEC’s own projections: As we pointed out yesterday, the cartel also expects US production to ramp up in 2018 as shale producers – much more lean and efficient and significantly delevered after the 2015/2016 “episode” – unleash output as oil price continue to rise well above the generally accepted shale breakevens in the low $50s.

The IEA boosted its forecasts for non-OPEC supply growth this year by 100,000 barrels to 1.7 million barrels a day compared with last month’s report, modestly higher than OPEC’s projections. It also warned 2018 could be a “volatile” year as Venezuela’s energy industry teeters on the brink of collapse.

Both OPEC and IEA expect Venezuela’s difficulties to continue after Latin America’s socialist paradise brooked the biggest unplanned production decline of 2017.

“The big 2018 supply story is unfolding fast in the Americas,” the IEA said in its monthly report. “Explosive growth in the U.S. and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico.”

…click on the above link to read the rest of the article…

Expert Analysis: Oil Prices Have Risen Too Far Too Fast

September 29, 2017

Expert Analysis: Oil Prices Have Risen Too Far Too Fast

Last Friday we argued that the rally in WTI and Brent looked overstretched from technical and positioning viewpoints. This week obviously didn’t serve our viewpoint as geopolitical tensions in Iraq alongside bullish long-term calls from Citi and the trading group community- particularly Trafigura- at APPEC pushed the market slightly higher. There are undeniably glut-clearing trends at work in the U.S. and abroad but we continue to feel that crude oil has risen too far, too fast and positioned for length-liquidation on any fundamental speed bumps as WTI’s 14-day RSI touched 70 this week while RBOB + Heating Oil net length held by hedge funds reached 2.5 standard deviations above its 2yr average.

– Despite our view that the market is technically overbought we still need to acknowledge tightening fundamentals in several key global trading hubs. PADD IB gasoline stocks are now -13 percent y/y at their lowest level since 2014, PADD IB distillate inventories are -32 percent y/y, Singapore middle distillate stocks are -7 percent y/y and ARA gasoil stocks are -20 percent y/y.

– Now for the not-so-good news. We’re already seeing the next stages of shale progress in North American markets opposite increased production in Libya. U.S. crude production printed 9.55m bpd last week which is 60k bpd shy of its 2015-high following a 750k bpd rebound from Harvey disruptions. Producer hedging in Cal ’18 and ’19 WTI was significant this week and is currently driving a 7-vol premium for WTI M18 25 delta puts relative to the 25 delta call. We expect U.S. and Canadian production to be a thorn in the side of bulls in coming months. Further east, Libyan production also topped 950k bpd this week (according to Bloomberg) which could also pour some cold water on the current Brent spread strength.

…click on the above link to read the rest of the article…

U.S. Oil Rig Count Continues To Collapse

September 16, 2017

U.S. Oil Rig Count Continues To Collapse

The number of active oil and gas rigs in the United States fell this week by 8 rigs.

The total oil and gas rig count in the United States now stands at 936 rigs, up 430 rigs from the year prior, with the number of oil rigs in the United States decreasing by 7 this week and the number of gas rigs decreasing by 1. Canada, meanwhile, added 10 oil rigs for the week ending September 15.

Oil rigs in the United States now number 749—333 rigs above this time last year.

Although the number of oil rigs are still up significantly year on year, the increases slowed in the second quarter, and have reversed in the third. The first quarter 2017 saw 137 oil rigs added in the United States, while the second quarter 2017 saw 97 rigs added. In stark contrast, the third quarter, for which there are still two weeks to go, has seen the total number of rigs decrease by 7.

The spot price for WTI fell earlier on Friday, down 0.16 percent to $49.81 at 11:53am. Brent crude, however, was trading up 0.27 percent on the day at $55.62.

Prices have been volatile in August and so far in September, with WTI going as low as $45.58 on August 31, and as high as $50.50, which it reached yesterday—the highest level we’ve seen in six weeks—as global production declined 720,000 barrels per day in August compared to July, according to OPEC’s Monthly Oil Report. It was the first drop in four months.

(Click to enlarge)

At 10 minutes after the hour, WTI was trading at $49.69 with Brent crude trading at $55.40.

WTI/RBOB Sink After Big Crude Build, Production Jump Offsets Greatest Gasoline Inventory Draw In History

September 13, 2017

WTI/RBOB Sink After Big Crude Build, Production Jump Offsets Greatest Gasoline Inventory Draw In History

WTI and RBOB prices are higher this morning following API’s reported the biggest gasoline draw in history (compared to EIA data). Of course, disruptions (Florida demand and Texas supply) remain dominant but DOE reports a massive 8.4mm draw in Gasoline inventories – the biggest draw ever. The reaction in prices is anti-climactic as production rebounded and crude built dramatically to offset the exuberance.

Bloomberg’s Javier Blas reminds readers that the report covers the period from 7:01 am on Friday, Sept. 1 to 7:00 am on Friday, Sept. 8. So a lot of disruption from Harvey (particularly from Sept. 1, 2, and 3) will still impact everything from refining intake to crude production and U.S. imports and exports.

API

Crude +6.181mm (+4.82mm exp)
Cushing +1.32mm (+1.6mm exp)
Gasoline -7.896mm (-1.5mm exp) – biggest draw ever
Distillates-1.805mm

DOE

Crude +5.888mm (+4.82mm exp) – biggest build in 6 mos
Cushing +1.023mm (+1.6mm exp- biggest build in 6 mos
Gasoline -8.428mm (-1.5mm exp) – biggest draw ever
Distillates -3.215mm – biggest draw in 6 mos

Bloomberg Intelligence energy analyst Vince Piazza notes that the impact from hurricane season will keep crude demand subdued, with roughly two million barrels of daily refining capacity off-line. Depressed gasoline consumption should persist temporarily on lower transportation use and suppressed refining utilization.

Gasoline inventories confirmed API’s data and saw the biggest draw in history as Crude and Cushing saw major builds…

The bearish data point is that total U.S. petroleum inventories (that’s crude, refined products, propane and the volatile “other oils” category) have built for the second consecutive week.

Total stocks up 1.7 million barrels, driven by big builds in crude, propane and other oils.

…click on the above link to read the rest of the article…

WTI Jumps After Harvey Prompts US Crude Production Collapse, Biggest Inventory Build In 6 Months

September 7, 2017

WTI Jumps After Harvey Prompts US Crude Production Collapse, Biggest Inventory Build In 6 Months

Last night’s first glimpse of Harvey’s impact on energy confirmed a sizable crude build but only modest gasoline draw. WTI/RBOB prices slid into the DOE print and extended losses after a bigger than expected crude build (+4.58mm vs +4mm exp). Gasoline and Distilates saw bigger draws than API reported but it was the collapse in Lower 48 crude production that stood out with most of Texas offline.

API

Crude +2.79mm (+4mm exp) – biggest build in 5 months
Cushing +669k (+1mm exp)
Gasoline -2.544mm (-5.2mm exp) – biggest draw in 6 weeks
Distillates -610k

DOE

Crude +4.58mm (+4mm exp)
Cushing +797k (+1mm exp)
Gasoline -3.20mm (-5.2mm exp)
Distillates -1.396mm

The inventory changes reported by the API were much smaller than those forecast by analysts. As a reminder, Saxo Bank’s Ole Hanson notes that “inventory data later is a lot of moving parts which could be quite skewed away from what we’ve seen in recent weeks.” Additionally, investors “are going to be skeptical of the data,” James Williams, an economist at energy researcher WTRG Economics, told Bloomberg. “It might be pretty flaky data this week and next, so I don’t expect to see a big market-mover”

Bloomberg’s Fernando Valle notes energy’s past week was all about Hurricane Harvey as refineries shuttered, choking output and hauling down inventories of gasoline and distillates.

Bigger than expected crude build and bigger gasoline and distillate draws than API reported…

As one might expect, Gulf Coat imports fell to a record low.

Production declined in the previous week, and with most of Texas ofline last week – Crude production in the Lower 48 collapsed…

…click on the above link to read the rest of the article…

Oil Plunges To $28 Cycle Lows As Iran Supply Looms, Stocks Slide

January 17, 2016

Oil Plunges To $28 Cycle Lows As Iran Supply Looms, Stocks Slide

February WTI Crude futures have plunged to new cycle lows at $28.60 (down 2.7%) as Iran supply looms over an already over-glutted global crude market. Brent is down even more (-3.7%). Dow futures are down 60 points at the open.

*WTI OIL FALLS AS MUCH AS 2.7%, BRENT CRUDE DROPS 3.7%

Feb futures (which have just rolled) are under $29…

And the new on the run March contract is trading $29.60, down 2.6%…

Weighing on US equities… Dow futures down 65 points

(Re-)Covering Oil and War

January 15, 2016

(Re-)Covering Oil and War

The first thing that popped into our minds on Tuesday when WTI oil briefly broached $30 for its first $20 handle in many years, was that this should be triggering a Gawdawful amount of bets, $30 being such an obvious number. Which in turn would of necessity lead to a -brief- rise in prices.

Apparently even that is not so easy to see, since when prices did indeed go up after, some 3% at the ‘top’, ‘analysts’ fell over each other talking up ‘bottom’, ‘rebound’ and even ‘recovery’. We’re really addicted to that recovery idea, aren’t we? Well, sorry, but this is not about recovering, it’s about covering (wagers).

Same thing happened on Thursday after Brent hit that $20 handle, with prices up 2.5% at noon. That too, predictably, shall pass. Covering. On this early Friday morning, both WTI and Brent have resumed their fall, threatening $30 again. And those are just ‘official’ numbers, spot prices.

If as a producer you’re really squeezed by your overproduction and your credit lines and your overflowing storage, you’ll have to settle for less. And you will. Which is going to put downward pressure on oil prices for a while to come. Inventories are more than full all over the world. With oil that was largely purchased, somewhat ironically, because prices were perceived as being low.

Interestingly, people are finally waking up to the reality that this is a development that first started with falling demand. China. Told ya. And only afterwards did it turn into a supply issue as well, when every producer began pumping for their lives because demand was shrinking.

All the talk about Saudi Arabia’s ‘tactics’ being aimed at strangling US frackers never sounded very bright. By November 2014, the notorious OPEC meeting, the Saudi’s, well before most others including ‘analysts’, knew to what extent demand was plunging. They had first-hand knowledge. And they had ideas, too, about where that could lead prices. Alarm bells in the desert.

…click on the above link to read the rest of the article…

WTI Extends Crash To 10% After API Inventories Surge Most In 5 Months

September 1, 2015

WTI Extends Crash To 10% After API Inventories Surge Most In 5 Months

After the worst day since last November’s OPEC meeting, WTI crude is falling further tonight as API reported a huge 7.6 million barrel inventory build. This is the biggest build (compared to DOE data) since early April! WTI Crude is now down 9.85% on the day – that is a bigger drop (close to close) than the Nov OPEC meeting drop and is not matched back to 2008/9’s collapse.

and the reaction is more selling in WTI…

Which is now down 10% on the day – a bigger move than the OPEC drop…

Charts: Bloomberg

Why the $20 Oil Predictions are Wrong

August 25, 2015

Why the $20 Oil Predictions are Wrong

Deja Vu

As the price of West Texas Intermediate (WTI) retests the $40 per barrel (bbl) mark, some pundits are again calling for WTI to fall to $15 or $20/bbl. The same thing happened earlier in the year when crude prices tested $40. Lots of people predicted $20, the price went to $60, and the $20 crowd went quiet for a while. Well, they are back:

Why oil prices could sink to $15 a barrel

“There is no evidence whatsoever to suggest we have bottomed. You could have $15 or $20 oil — easily,” influential money manager David Kotok told CNNMoney. “I’m an old goat. I remember when oil was $3 a barrel,” said Kotok, whose clients include former New Jersey Governor Thomas Kean.

Yes, and you could get a candy bar and soda for a nickel. But I will bet him $10,000 we don’t see WTI at $15/bbl unless he has access to a time machine. Today I want to address this argument. I got into a debate on this topic with a person yesterday, and I am seeing enough of these predictions that I thought it warranted addressing. Again. The $20/bbl argument goes something like this: Crude oil inventories are extremely high. U.S. oil production keeps rising. Demand is falling. Something has to give.

Crude Inventories Did Rise

The problem is that this conventional wisdom argument is wrong on 2 counts. It is true that crude oil inventories are high. Last week there was a surprise build in U.S. crude oil inventories. Analysts were expecting inventories to fall — which they have been doing since April — but instead crude inventories rose by 2.6 million barrels. Following this week’s release of the Weekly Petroleum Status Report announcing the surprise build in inventories, I saw more than one person claim “We are definitely going below $40/bbl today.”

…click on the above link to read the rest of the article…

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