THE DECLINE to $10 (R186) a barrel in the June contract for West Texas Intermediate can be attributed to concerns about oversupply and lack of demand, which remains front and centre for market participants, says Lester Davids, a trading desk analyst at Unum Capital.     Reuters
THE DECLINE to $10 (R186) a barrel in the June contract for West Texas Intermediate can be attributed to concerns about oversupply and lack of demand, which remains front and centre for market participants, says Lester Davids, a trading desk analyst at Unum Capital. Reuters

WTI contracts for June sink to $10 a barrel

By Dineo Faku Time of article published Apr 29, 2020

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JOHANNESBURG - The benchmark price of US crude oil plummeted further yesterday amid concerns about diminishing storage ability in an oversupplied market.

The West Texas Intermediate (WTI) contract for June fell to $10 (R186) a barrel in early trade in London before recovering to $12 a barrel around noon, following the unprecedented sub-zero fall for the first time.

The WTI May contract dropped off the charts after plunging to -$40 a barrel last Monday, meaning that sellers were paying buyers to take oil off their hands as lockdowns to reduce the spread of Covid-19 crushed demand.

Lester Davids, a trading desk analyst at Unum Capital, said the decline in the June contract to about $10 could be attributed to concerns about oversupply and lack of demand, which remained front and centre for market participants.

“In the short term, we can expect volatility and pressure on the oil prices to continue as aforementioned supply and demand factors sway the opinions of traders,” said Davids.

The Brent crude price, which is an accurate measure of the price of oil in South Africa, has also been impacted by falling WTI prices.

“With regard to Brent crude oil, it is the negative sentiment that is related to the WTI that has spilt over, hence the related pressure on Brent,” said Davids

Brent crude, which fell to 18-year lows last Tuesday, increased 1.23percent yesterday to $21.22, supported by a buoyant equity market due to the expectation that economies would encounter a phased re-opening.

Carlo Alberto de Casa, the chief analyst at ActivTrades, said the Brent crude trend had approached bearish levels in the past few days.

“The possibility of transporting it and the specific characteristics of the underlying contract are making Brent much more resilient in the current storm,” De Casa said.

He said the picture for oil investors remained bleak, with the June WTI tumbling to $10 switching attention to the expiry of the contract with the painful memory of sharply negative prices when the May contract expired still fresh in the mind.

“Traders’ unwillingness to be caught with any barrels when the June contract expires also explains the strong contango, with the June expiry trading at close to $10 on the Chicago Mercantile Exchange, while the prices for July and October are 70percent and 140percent higher, respectively.

“Moreover, investors are expecting demand to slowly recover in the third quarter of 2020, helping US tanks to avoid another ‘no vacancies’ situation,” said De Casa.

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