WTI Crude Oil – Probable Price Path
Volatile oil prices were seen overnight, with the soon expiring May delivery contract plunging below zero for the first time to -$ 37.63 per barrel amid concerns that the oil glut was running out of storage space amid weak global demand, albeit the June contract is still trading above $ 22 per barrel. The S&P500 retreated 1.8% overnight (even though Amazon and Netflix rose), pushing VIX up to 43, while UST bonds gained and pushed the 10-year bond yield down to 0.61% on flight to safety. China cut its LPR fixings yesterday as widely anticipated. Elsewhere, New Zealand extended its lockdown measures for another week until 27 April and RBNZ proposed to remove mortgage loan-to-value ratio restrictions for a year due to the Covid-19 induced downturn.
$ 37.63 per barrel. Yes you read that right, WTI prices ended the day at negative $ 37.63 per barrel yesterday, meaning suppliers are paying buyers to take the cargo away. What happened? Fingers have been pointed at WTI May futures expiring today (21 Apr). With a lack of storage space, physical buyers are unable to take delivery, thus opting to roll over their purchases to June or beyond. The selloff was made worse by speculators and algo trading. Note that only the May contract is trading at negative prices – the June contract is trading sub $ 20/bbl, suggesting it was a storage issue more than a demand problem. That said, the situation of global crude storage remains dire, and by the same rationale it is reasonable to presume the same selloff might happen again when the June contract expires unless the US (and the world) can find places to house their inventories.
From a technical and trading perspective, WTI Crude (continuous contract) looks poised to test an equality objective cited at 12.50, from here we may see a corrective phase develop in three waves, contrarian players will be watching for bullish key day reversal patterns in this area to play for short squeeze. A failure to find support in the 12.00 area would suggest that a further waterfall decline will develop with prices poised to test monthly donside confluent targets at 2.00.
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