Crude Oil Volatile; WTI Contract Heads Lower

By Peter Nurse

Investing.com - Oil markets saw more volatile trading Tuesday, with the front month June WTI contract lower amid fears that it, too, will turn negative as delivery date looms.

AT 9:45 AM ET (1345 GMT), Crude Oil WTI futures traded 3.6% lower at $12.32 a barrel, while the international benchmark Brent contract rose 0.9% to $23.27.

Overnight, the United States Oil Fund (NYSE:USO), an ETF that accounts for a large block of exposure in WTI futures, said it would sell off all its contracts for June delivery, replacing them with longer-term contracts.

In addition, S&P Global is reported to have told clients to roll all their exposure out of WTI June futures and into July with immediate effect.

According to a notice by the company seen by Bloomberg, "this unscheduled roll is being implemented based on the potential for the June 2020 WTI crude oil contract to price at or below zero as well as the steady decline in open interest for the June 2020 contract.”

S&P Global runs the most popular and biggest commodity index in the world, the S&P GSCI.

Investors are wary that WTI futures could repeat last week’s journey into negative territory when its June contract expires on May 19, with no real signs of a recovery in demand and storage space fast running out.

"The exodus in our view remains motivated by concerns over the saturation of storage capacity at Cushing and the associated risk of negative pricing," Harry Tchilinguirian, global oil strategist at BNP Paribas (OTC:BNPQY) told the Reuters Global Oil Forum.

U.S. crude inventories rose to 518.6 million barrels in the week to April 17, near an all-time record of 535 million barrels set in 2017, while floating crude oil storage has hit an all-time high of 160 million barrels.

Argus reported on Tuesday that OPEC member Nigeria has set its official prices for May at discounts of more than $5 a barrel to prompt North Sea (NYSE:SE) cargoes, partly because it lacks onshore storage to wait out better times. At current levels, that would imply much of its oil will sell for less than $10.

More information about storage levels are due later Tuesday, as the American Petroleum Institute will report its measure of crude stockpiles after the market closes. Last week the API reported a rise of about 13.2 million barrels in inventories.

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