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Energy Summary for April 20, 2020

2020-04-20 19:58 ET - Market Summary

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by Stockwatch Business Reporter

West Texas Intermediate crude for May delivery had an astonishing day, plunging $55.90 to minus $37.63 on the New York Merc, the lowest level in historical trading data going back to 1946 (all figures in this para U.S.). That is worth its own paragraph, further below. Brent for June lost $2.51 to $25.57. Western Canadian Select traded at a discount of $10.75 to WTI, up from a discount of $14.25. Natural gas for May shot up 17 cents to $1.92. The TSX energy index lost a fraction to close at 62.12.

A combination of factors swept WTI up into an unprecedented plunge deep into negative territory. Amid a backdrop of sinking demand and rapidly filling storage tanks, traders today had to contend with the imminent expiry of WTI's May contract. Whenever a futures contract expires, traders must decide whether to take delivery or roll their positions into a different contract. This is normally so uncomplicated that the rollover effect barely shows up on a month-to-month basis. Even as recently as one month ago, the key storage tanks at Cushing, Okla. (where physical delivery takes place), were just half full and the end-of-contract price swings (while historically unusual) were limited to about 10 per cent. Now the tanks are pushing 70 per cent full and trading has never been so erratic. The soon-to-expire May contracts were run into the ground and then some as traders desperately sought to exit their long positions. Anyone who is still long crude is stuck with it, and will have to contend with the increasingly dire problem of where to put it. To give another sense of the record dislocation in the market, WTI for June delivery is still trading at over $20 (U.S.) a barrel. The gap between the two contracts is by far the largest ever.

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