So Much For Black Gold

RP Weekly Recap | April 20-24

Summary

The change in your pocket or between your couch cushions became more valuable than a barrel of oil on Monday as prices went negative for the first time in history. Historically low prices have prompted producers in North Dakota to shut-in their wells, regulators in Oklahoma and New Mexico to allow producers to shut-in wells without consequence, but Texas is still hesitant to take action.


BREAKING NEWS

The World witnessed history on Monday as the price for a barrel of oil (both futures contract and spot price) went negative for the first time ever. Demand for oil has all but dried up as lockdowns across the world have kept people inside. Such dramatic measures alongside vanishing storage space caused the price of the May futures contract to fall a remarkable 306% on Monday to a jaw dropping negative $37.63 per barrel [MarketWatch]. This unprecedented event was a result of several factors that created a situation in which buying oil storage was more expensive than the commodity (oil) itself. 

Oil futures are contracts to deliver the commodity (crude oil) to a specific location on a specific date. Monday’s violent price action came about because the WTI May contract expired on Tuesday. This means anyone in possession of a May contract would have to take delivery of 1,000 barrels of crude oil after Tuesday’s closing bell (1 contract = 1,000 barrels of oil). So, investors who are not in the refining (or other oil-consuming) business, got rid of their contracts as they had no place to store their barrels of crude. 

Normally, if investors do not want to take delivery, they can simply sell the contract or roll it over to the next month. However, because of the enormous supply glut plaguing the industry due to worldwide lockdowns and in absentia storage space due to oversupply, no one wanted to buy the contracts. The scenario led to investors paying other investors to take on their contract because unlike excess bread at the bakery that didn’t sell, crude oil can’t be left outside for the birds. You cannot go dumping crude oil on the ground, pour it in a river, or burn it – the EPA would have a fit. The only place for oil to go if it does not get sold to a refinery is into storage. That is the reason prices went wild on Monday: refineries being unable to process crude forcing it into unavailable storage. The result were investors selling their contracts at steep discounts to ensure they would not be stuck with excess crude. 

The violent swing in the WTI May contract price actually resulted in the WTI spot price dipping below zero until trading opened Tuesday. After a tumultuous day Monday, the markets began to settle once the May contract closed Tuesday evening. Although the May contract climbed $47.64 to settle at $10.01 (a 126.6% jump, the largest one-day net gain on record), the June contract lost $8.86, or 43.4%, to settle at $11.57 a barrel [MarketWatch].  

For a fascinating chart illustrating crude’s spectacular plunge below $0, be sure to check out the MarketWatch article HERE


COVID-19 Updates

COVID-19 Statistics

  • Number of Cases (Worldwide): 2,761,121 (up from 2,188,212 last week)
  • Number of Cases (USA): 880,112 (up from 672,303 last week)
  • Statistics (courtesy of Johns Hopkins)

Financial & Economic Updates

US Oil Market News

  • Oklahoma’s Energy Regulator Allows Producers To Shut-in Wells Without Losing Their Leases (Link)
  • New Mexico Agreed To Allow Shut-ins on State Land for 30 Days With Rule Changes for Longer Periods in the Works (Link)
  • The Largest Oil Producer in North Dakota, Continental Resources, Halts Shale Output (Link)
  • U.S. Energy Exports Top Imports For The First Time Since 1952 (Link)
  • Shell Shuts or Cuts Rates at U.S. Refineries on Low Demand (Link)
  • U.S. Shale Braces For Longest Ever Drop In Fracking Activity  (Link)

Global Market News

  • The Battered $700 Billion US Energy Industry is Now Worth Roughly Half of Microsoft Amid Oil’s Record Plunge (Link
  • Trump Orders Chevron Out of Venezuela (Link)
  • Saudi Supertankers Stranded As Oil Price War Backfires (Link)
  • Oil Could Hit Negative $100 per Barrel Next Month, According to One Analyst (Link)

Employment Updates

  • Coronavirus Furloughs Begin For More Than 100,000 Disney, Best Buy, and CarMax Workers (Link)
  • Roughly 1 in 6 Americans Who Was Employed in February Has Since Filed for Unemployment – More Than 26 Million Americans File for Unemployment Amid Coronavirus Outbreak (Link)

US Rig Count Statistics (courtesy of Baker Hughes)

  • (-64) in the last week 
  • Down 53% from one year ago

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RARE PETRO Updates

Content UpdatesNews PulsePodcast

  • Natural Gas Rebound Poised for Recovery Before Crude Oil: Why the Market has Priced Electricity and Liquid Fuel Demand into Commodity Prices (Link)
  • Our Newest Endeavor, The Industry Leader Spotlight Podcast is Available Now! Be sure to check out our first installment – an interview with our President & CEO, Anthony McDaniels! (Link)
  • New Basin Breakdown Podcast for March 2020 (Link)
  • New Monday Madness Podcast (Link)

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