WTI Front-Month Crude Slides into Negative for First Time

The Nymex front-month contract for West Texas Intermediate (WTI) slid into the negative for the first time in history on April 20, closing at minus $37.63/b, because of a lack of storage.

The contract, for May delivery, expires on April 21. It is currently at -$0.30/b. The June WTI contract, available until May 19, shed 18% of its value yesterday, settling at $20.43/b. 

“This issue is most intense for May WTI because oil demand is at its weakest, with full coronavirus containment measures in place across much of the US," Wood Mackenzie said in a research note late on April 20. "For May WTI, the problem is compounded because the contract is settled by physical delivery at Cushing. Storage at the Oklahoma facility is expected to be full within weeks. Brent is not constrained by this requirement for physical delivery.

“On top of this, oil supply has not yet been affected enough by either production shut-ins for economic reasons or by the Opec+ production cuts," the Edinburgh-based consultancy continued. "With signs of a possible easing in containment measures against Covid-19, the next month’s WTI expiry might not see such an intense selling pressure."

Brent has also lost ground, but far less. The June contract shed almost 10% on April 20, closing at $25.57/b. It has shed a further 6.2% today, and at time of press was trading at $23.98/b.

UK upstream group Oil & Gas UK said late April 20 that "while we have anticipated continued pressures on oil markets, there’s no getting away from the fact that this situation is a body blow for an industry already creaking under the strains of the impact of Covid-19 and sustained low commodity prices.

“The dynamics of this US market are different from those directly driving UK produced Brent, but we will not escape the impact. Ours is not just a trading market; every penny lost spells more uncertainty over jobs, our contribution to public services and to the just transition we all want to see. OGUK will be pressing the case for a Covid-19 resilience package to governments in the coming days which will focus on protecting the supply chain, jobs and our ability to continue to reposition ourselves for the future.”