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Oil Swings Wildly After Major Index Bails Out of June Contract


By Olivia Raimonde

(Bloomberg) Oil resumed losses after a brief bounce higher amid the aftershocks of a major index tracked by billions of dollars in funds exiting near-term contracts for fear prices may turn negative again.June WTI fell about 6% after climbing as high as $13.69 in trading Tuesday morning after an abrupt decision by S&P Global Inc. to tell clients to sell their June West Texas Intermediate holdings. Physical inventory levels of crude are filling quickly, forcing investors to reconsider holdings in the near-term contract.“The June contract is going to be like what happened with May,” said Tariq Zahir commodity fund manager at New York-based Tyche Capital Advisors LLC. “It go could go to twenty dollars, it could go to four dollars, it could go negative. You’re in unprecedented times. June could be all over the place.”

Holdings of the nearest WTI contract have collapsed in the last week

Oil’s 80% plunge since the start of the year has come as the coronavirus outbreak destroys demand for fuels globally. In response, the world’s biggest producers have pledged to slash daily output starting next month to balance the market, but the collapse in consumption has led to a swelling glut that’s testing storage limits worldwide.

S&P is behind the GSCI commodity index, a popular investment product tracked by pension funds and other global investors. When S&P changes the investment policy, the banks who sell the product in turn move their holdings, triggering volatile energy markets.

“This unscheduled roll is being implemented based on the potential for the June 2020 WTI Crude Oil contract to price at or below zero,” S&P said in a notice seen by Bloomberg News. A spokesperson confirmed the notice.

Exchanged traded products — most notably the United States Oil Fund LP — have also rolled positions from June futures into later contracts, while the Bloomberg Commodity Index said it will roll from July into September.

Since WTI traded negative last week, more than 40% of the June contract has been liquidated. Holdings of the July contract have been stable, while those on September futures have jumped by almost 20%.

Prices:
  • WTI for June fell 71 cents to $12.07 a barrel at 11:37 a.m. NY time. It earlier fell to as low as $10.07 a barrel.
  • Brent for the same month advanced 20 cents to $20.19 a barrel.
  • Dated Brent, a reference for nearly two-thirds of the world’s physical crude, dropped to $13.62 on Monday, from $16.01 on Friday, according to traders monitoring prices from S&P Global Platts.

While the market is being hit by financial flows, Russia warned that there will be no quick fix to low prices. The nation’s energy minister, Alexander Novak said Tuesday that the oil market may only start to rebalance in the second half. Prior to the output cuts, which begin on May 1, supply from the Organization of Petroleum Exporting Countries climbed to over 31 million barrels a day, according to Geneva-based tanker tacker Petro-Logistics.

For the latest news and analytics surrounding volatile crude prices, click here.

Other oil news:
  • The U.S. Oil Fund recorded a net loss of $1.19 billion in March, according to a regulatory filing.
  • BP Plc said it will review its dividend policy quarter-by-quarter, as investors and analysts questioned the sustainability of the payout during a severe oil-price slump.
  • Crude futures traders have leapfrogged a month after the fireworks that dragged the May contract below zero.


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