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The spot price of WTI crude oil dropped below $0 for the first time in history today. While a supply glut for crude oil exists, the true value of crude going forward is not near or below $0.
The spot price of WTI crude oil dropped below $0 for the first
time in history today. While a supply glut for crude oil exists,
the true value of crude going forward is not near or below $0.
Today's negative WTI spot price reflects an absence of
further demand for May deliveries beyond what buyers have already
purchased for May. The contract for May deliveries closes
tomorrow.
June, July and August deliveries are trading around $22, $27 and
$30, in-line with broader market views on demand. Saturation for
May delivery resulted from (i) decreased demand for oil and refined
products due to the COVID-10 pandemic, (ii) US domestic storage
facilities nearing full capacity and (iii) the OPEC+ cuts not
taking effect until May 1.
While supply/demand issues persist globally, today's WTI
price below $0 is a timing aberration in our view.
"This is a unique moment in time—a perfect
storm—but the world still has demand for crude oil. Today is
an anomaly," said Omar Samji, a partner in Shearman &
Sterling's Energy industry group.
As shocking as today is—tomorrow is another day.
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