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Investors spooked by oil demand worries


Hong Kong: Financial markets surveyed the devastation to oil demand from the coronavirus pandemic even as benchmark prices staged a brief recovery. WTI June futures were down 13% while the May contract was in negative territory yet again. Brent crude also remained subdued.

The Stoxx Europe 600 index was down 1.5% and the S&P futures are down 0.4%. 

Analysts said that although oil fundamentals were dire, the price action was led by logistics peculiarities of the oil industry and technical reasons in the futures markets.

“According to our forecast, Cushing is set to hit tank tops by early May, which would render the hub physically contained. Ultimately, crude must price to stop barrels flowing into the hub, and in this case, production shut-ins need to happen to enable this,” Amrita Sen, Chief Oil Analyst at Energy Aspects, said in an emailed response to Asia Times Financial.

“While on the surface, a $0 oil price would suggest producers stop production, in theory, it is more economic to pay someone to take the crude rather than shut the well (as there are costs associated with shutting a well) up to the shut-in cost. Either way, this equates to a negative well head price and explains a portion of the price action.”

Besides there were drivers in the financial markets as well. 

James Trafford, Fidelity International portfolio manager, said the current ‘front month’ is for delivery at Cushing, Oklahoma in May and expires today, which means anyone who has been long in the current May contract and did not want to take delivery of a physical barrel of oil needed to sell the contract or roll it forward.

“The price movement confirms that near-term demand is very weak. But it isn’t cataclysmic. We don’t see negative oil prices as a new normal going forward,” he added.


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