For the past six weeks, it seems like we are continually making history, and to be honest, I am ready for a bit of normalcy. Unfortunately, today was anything but normal, as the price of WTI broke all the previous records and traded below zero for the first time.
Today was unprecedented; the price for the May contract is breaking every price low since 1946, and at one point hitting -$40.32 a barrel. The extreme price lows show just how oversupplied the US oil market has become as COVID-19 shuts down industrial and economic activities reducing demand. And while it was hoped that the deal from OPEC last week curbing supplies would help, it was too little too late.
So here we are today, facing a technical oddity, caused by traders flee the May Future contract ahead of its expiration tomorrow. US storage room is non-existent, and while production cuts are being announced daily, it hasn’t happened quickly enough to avoid maximum storage levels. The result is producers having to pay buyers to take the crude that they can not store.
What does this mean for Western Canadian select? Usually, WCS, which generally trades at a discount to WTI due to transportation, but today it is trading above WTI, as WCS was trading against the June contracts, not the May contracts. WCS is still not selling at a price that is supportive of production costs, closing at $9.02USD.
I always like to include little positive thoughts to my writings, and I would like to note that we do expect as production is reduced and eventually, the easing of travel restrictions, we will see a rising demand for oil. While it is unlikely that we will see prices that we expected heading into 2020; hopefully, negative oil prices will be a once in a lifetime event.
Closing Prices April 20th, 2020
WTI May contract -$37.63.
WTI June Contract $21.04
WCS $9.02 USD