WTI negative again, Brent feels the squeeze - Rystad comments

Any hopes that yesterday's market carnage would be a 1-day story have been quickly extinguished as NYMEX reopens.

The contagion has spilled over to WTI June 2020 deliveries, which could also be well on their way into the red as we move towards physical delivery dates.

The storage shortages are real and will not be resolved at the current market conditions, even with the agreed OPEC+ cuts. More output curbs are needed, generous ones, in order to see supply and demand balancing again. That will not of course relieve storages, but as demand bounces when some of the lockdowns are over, some supplies could also be sourced from the full-by-then tanks.

Brent is not immune to a negative price possibility. What happened to WTI can happen to any traded commodity, if the forces behind the short are aligned. This explains the negative sentiment around Brent today, which is also falling by a wide margin. Traders have realized the danger and thus the sell-off that is observed today.

Overall, however, Brent should be more resilient - given it is made up of multiple crude grades and has natural egress to seaborne markets, and thus can chase global demand in a way that WTI cannot. There are also fewer players with a vested interest in seeing Brent collapse - Saudi and Russian crudes are both unofficially pegged to Brent, for example.

With no more generous production cuts announced and as the last remaining storage facilities get filled to the top with oil, we can expect to see such huge swings in oil prices from now on. The mild daily changes in oil price that we were used to some months ago may now be calm luxuries of another era.

Read the latest issue of the OGV Energy magazine HERE.