Oil prices could go negative again: US commodities regulator warns

Oil prices could again drop below zero amid the upcoming West Texas Intermediate (WTI) June futures contract expiry on May 19 and the ensuing risks, the US commodities regulator said in a warning to brokers, exchanges and clearing houses.

The rare warning by the Commodity Futures Trading Commission (CFTC) comes on Wednesday after the May contract for WTI crude made history late in April, with prices falling below zero and settling in negative territory.

The WTI contract for June delivery will expire next week on Tuesday, increasing the possibility of a repeat of the disorganized final two trading days in the May oil contract, which settled at minus $37.63 a barrel on April 20.

The move caused traders and one future broker to suffer losses, triggering widespread criticism of an oil benchmark referenced by drillers, refiners, consumers and investors.

Spot US oil futures crash below zero with nowhere to store crude

US benchmark WTI oil price closes at minus $37.63 a barrel for the first time in history as supply glut forces traders to pay others to take the commodity.

“We are issuing this advisory in the wake of unusually high volatility and negative pricing experienced in the May 2020 West Texas Intermediate (WTI), Light Sweet Crude Oil Futures contract on April 20,” the CFTC said in its eight-page advisory notice.

It also advised exchanges to monitor their markets and reminded them to “maintain rules to provide for the exercise of emergency authority,” including the power to “suspend or curtail trading in any contract” if markets fall into disarray.

It called on clearing houses to “prepare for the potential that certain contracts may experience significant price volatility, and that negative pricing is a possibility.”

Brokers should carefully monitor contracts as their expiry date approaches, the agency cautioned, urging them “to be particularly diligent in monitoring and assessing risks.”

Prices have plunged in recent weeks as demand for the commodity collapses owing to lockdowns and travel restrictions imposed worldwide to fight the coronavirus. The situation was compounded by a supply glut resulting from a price war between OPEC cartel kingpin Saudi Arabia and non-OPEC rival Russia.

Oil near 18-year low on demand devastation warning

Oil languished at multi-year lows on Thursday, with WTI crude remaining around $20 a barrel as dire warnings about a virus-triggered demand shock overshadowed a deal to cut output.

Top producers have agreed to reduce output by 10 million barrels a day from May to shore up markets, a deal that marked an end to a price war between the two countries.

IEA predicts record 2020 oil demand fall 

Meanwhile, the International Energy Agency (IEA) on Thursday predicted a record decrease in oil demand in fall this year.

The Paris-based agency said in its monthly report that demand is likely to decline by 8.6 million barrels per day (bpd), trimming its estimate by 690,000 bpd.

In trimming its forecast, the agency said that nearly 2.8 billion people will be affected by confinement measures aimed at stemming the coronavirus at the end of May, down from 4 billion in April.

It also cited stronger-than-expected movement in some European countries and the United States besides higher Chinese demand now that the Asian country is recovering from the virus outbreak.

"Economic activity is beginning a gradual-but-fragile recovery. However, major uncertainties remain. The biggest is whether governments can ease the lockdown measures without sparking a resurgence of COVID-19 outbreaks." 

By the end of 2020, the IEA projected that the US would be the biggest single contributor to supply reductions, down 2.8 million bpd year on year.

"It is on the supply side where market forces have demonstrated their power and shown that the pain of lower prices affects all producers," it said.

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