Oil Goes Negative (First Time in History)
It’s been a record-breaking week for oil, one that has, no doubt, left many traders totally bewildered.
On Monday, oil suffered its largest one-day loss on record. It fell by more than 100%, landing in negative territory for the first time. The continuous futures contract bottomed out at lows of negative 37 on the day.
The catastrophic collapse was the result of the rollover action in the contract for May delivery. This saw traders rolling their position into the front month in record numbers. Traders shunned any physical receipt of oil amidst the ongoing nadir in demand.
While the contracts recovered back into positive territory quickly after the move lower, the historic drop has raised serious concerns over the health of the most important global commodity.
Inventories Rise Again
The latest report from the EIA this week did little to inspire any confidence. The Energy Information Administration reported that in the week ending April 17th, US crude oil inventories rose by a further 15 million barrels.
Standing at 518.6 million barrels, US crude levels are now less than 20 million barrels off the all-time highs set in 2017 of 535 million barrels.
US Crude Production Falls
US crude production has been reducing over recent weeks as refiners cut back activity rates in light of the dirge in demand. Last week, production fell by 100k barrels to 12.2 million barrels per day.
However, production is still far too elevated to address the growing supply glut squashing the trading price.
Gasoline & Distillate Stocks Rise
Gasoline stocks were higher last week also, rising by 1 million barrels. However, this was, at least, less than the 3.6 million barrel increase forecast. This suggests there has been some uptick in gasoline demand, albeit minor.
Distillate stockpiles were also higher. These rose by 7.9 million barrels over the week to 136.9 million barrels in total. This was around 3 times the 2.8 million barrel increase forecasted.
Given the ongoing rise in US inventories, there is now a very real fear over storage capacity in the US. At the Cushing delivery hub in Oklahoma, inventories were up a further 5 million barrels to 60 million barrels last week.
This means there is only enough room now for around 75 million more barrels. As such, the outlook for oil prices remains heavily subdued here.
Crude Posts A Shallow Recovery But Remains Vulnerable
The recovery rally in oil this week has seen price trading back above the 0 level and back above the 10.72 level resistance which has turned support.
While price remains above here the focus is on a further recovery higher with the 17.12 level the next structural level to watch ahead of the bearish trend line from 2020 highs.