Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
The front-month WTI crude oil future is becoming a very lonely place. Fears that storage will top out and predictions of another assault on negative oil prices are making firms and exchanges force the hand of participants and pressure them to exit the market.
Reuters reported that the USO oil ETF fund had been ordered by CME/NYMEX to reduce its holdings of WTI futures contracts in June and July, which USO announced yesterday in a filing with the SEC. They report that sales will be completed between Monday and Thursday. Because the USO has become a forced seller, potential buyers and market makers have marked down their bid prices, knowing USO will still have to accept some of them, which is what has created a renewed drop in WTI prices on Monday, this time for contracts with June and to some extent July delivery dates.
Yet it is not just the USO fund that is being pressured to exit the market. S&P, Dow Jones, GSCI, commodity index, told clients to roll their exposure out of the June WTI crude oil futures into July with immediate effect due to the risk of negative oil prices for the June contract. Many clearinghouse are making healthy suggestions, if not outright denial of trading privileges, in the front-month WTI future as fear of unprecedented volatility might smash both the bulls and the bears in oil. They even fear short positions because of the potential for sharp snap-back swings on low volatility. After the USO gets out, the front-month crude contract might look as desolate as the eerie empty streets of downtown Chicago.
The Russian Energy Minister, Alexander Novak, is predicting that the global oil market may start re-balancing in the second half of the year. He said he is counting on the oil market to work out the imbalance starting from next month once the OPEC Plus deal goes into effect. Yet at the same time, he is not looking for a sharp increase in oil prices.
Reuters is reporting that, “Oklahoma’s governor has called on U.S. President Donald Trump to declare the coronavirus pandemic an “act of God,” a step to help oil-producing states contend with a crude glut that caused futures prices to close below $0 last week for the first time. “Over-production of oil continues to threaten the economy,” Governor J. Kevin Stitt said in a letter to Trump that Stitt posted on Twitter late on Saturday.”
Oil spreads and options may be the way to go. The market is still pricing in demand coming back and production tanking by the end of the year. Volatility may make some more exotic spreads very interesting.
With all of the volatility in oil and other markets, you must stay tuned to the Fox Business Network where they are invested in you.
If you are a trader and you are finding out that you might need more help call me at 888-264-5665 or email me at email@example.com.