U.S. oil prices aren’t expected to repeat last month’s unprecedented collapse into negative territory, industry experts say, because the nation’s stockpile has slowly decreased, easing a storage crisis, while traders “learned their lesson.”
One month after the technicalities of oil trading sent the price of U.S. oil tumbling to negative $37.63, another contract for oil traders is coming due next week. But with the price of West Texas Intermediate, the U.S. benchmark, rising to $27 on Thursday, one analyst’s prediction of the price sinking to as low as negative $100 no longer seems possible.
The April oil price collapse was caused by “panic and blind algorithms” among traders, said Paul Sankey, an oil industry analyst with Mizuho Bank who warned that WTI could fall to negative $100 per barrel on the May 19 delivery date if the same trading pattern was repeated.
“We think the market has mitigated that risk, heeding our warning,” Sankey said Thursday.
WTI purchased on the futures markets with June contracts is to be physically delivered to storage terminals in Cushing, Okla., starting Tuesday, just as May contract oil was to be delivered April 21. But with storage space nearing capacity last month as demand for oil dried up during the pandemic, buyers with no place to put oil were paying others to take it away.
Expert: Oil could go to negative $100 per barrel in May
Over the past month, however, the oil glut has subsided and storage space is again available in Cushing, says Shin Kim, an oil supply expert with the energy and commodities research firm S&P Global Platts, adding that a collapse of oil prices into negative territory wouldn’t happen again.
Storage tanks at the Oklahoma trading hub can hold nearly 76.1 million barrels of crude. On May 1, 63.4 million barrels of oil were stored there, about 83 percent of capacity, according to the U.S. Energy Information Administration.
Production cutbacks and slowly increasing demand as lockdown orders have been lifted have eased the glut and reduced the amount of oil stored at Cushing. As of May 8, tanks there held 60.4 million barrels of crude oil — or roughly 79 percent of capacity.
“The situation is not nearly as dire as it was a month ago” Kim said. “Cushing crude stocks showed a drawdown this week and will likely next week. There is more confidence that the oil market will not run out of storage.”
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Meanwhile, traders have “learned their lesson” of the April price crash, with trading funds making structural changes to prevent the situation from happening again, said Ed Hirs, a University of Houston economics professor specializing in the oil and gas industry.
“Rather than holding the next month contract almost exclusively, they are now buying contracts spread out across the next six to 12 months so that they are not exposed to the same situation as April 20,” he said.
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