Oil contracts turn negative amid collapsing demand and storage shortages

In another sign of the unprecedented nature of the COVID crisis, yesterday future prices for WTI oil to be delivered in May dropped to US$-37/bbl. Unlike Brent, contracts on WTI entail a physical delivery at a specific delivery point (Cushing, Oklahoma) of oil to the counterparty. As capacity in the US has reached its limits, investors are actually paying to prevent storage shortages on delivery. Movements in the other parts of the curve were much smaller. This indicates the belief that dislocation in the oil price will be followed by a rapid downward readjustment in supply.

  • Yesterday the short-term forward price for WTI oil turned negative for the first time in history. This was mainly due to the way contracts are settled, but highlights the impact of the collapse in demand on inventories.
  • The US-brokered deal to cut global production by 10% is proving inadequate as global demand is dropping by 30%
  • Weak demand following uncertain growth prospects and inventories will keep a big pressure on prices and we do not see any scope for increases before Q3.
  • The outlook of lower for longer prices is starting affecting oil producing countries and step up the stress on the overleveraged US shale sector.
COVID-19 UPDATE: Facts & Figures 16/10/2020


China's economic recovery continued in Q3 2020, although a bit softer than expected. Real GDP growth rose to 4.9% yoy, slightly below the Reuters consensus expectation of 5.2% yoy, but still a substantial upturn from the 3.2% yoy in Q2. On a quarterly base, growth dynamics softened to 2.7% qoq, after 11.7% qoq and -10% qoq in the two previous quarters.
Citywire video-interview with Peter Marber
Watch Peter Marber, fund manager of this global, non-directional, long/short approach to Emerging Markets debt, in a video-interview by Citywire.
According to the IMF’s Managing Director, strong international cooperation on coronavirus vaccine could speed up the world economic recovery and add $9 trillion to global income by 2025. A WHO trial found that Remdesivir, Hydroxychloroquine, Lopinavir and Interferon have little or no effect on hospitalized Covid-19 patients. Gilead Sciences has questioned the findings of the WHO study saying data appeared inconsistent.