BAKU, Azerbaijan, Apr.21
By Leman Zeynalova – Trend:
The fact that West Texas Intermediate (WTI) May contract has crashed is due to several factors, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and Global Head Strategy Risk at Berry Commodities told Trend.
First, as the expert noted, WTI price crash should have been expected, as the US market is largely disconnected from global market.
Secondly, there were no clients to take on the oil available, as storage is running out, transport infrastructure in several main producing areas is not available or not up to the volumes, said Widdershoven.
The expert said the third reason is that the total issue is based on real market fundamentals.
Fourth, the crash can be seen as a real time example of supply-demand market fundamentals, with no or not enough demand the volumes are hitting a brick wall. The fifth, the impact is dramatic, but should also be blamed on the immense amount of money invested in WTI futures, without taking the warnings in the market that fundamentally things are wrong, and COVID issues are having a detrimental effect on total,” noted the expert.
He pointed out that with even global markets not interested in WTI (mainly shale) demand is not existing, prices needed to plunge.
Traders normally would have been able to roll-over the future contracts May to June or later. At present no interest however in the market, so futures holders were forced to activate their futures, being confronted by the fact that there is no demand and storage not available If you did not book storage for May, you are confronted by oil but no place to hold it in layman terms. So, nobody wanted it!” said Widdershoven.
“We will need to look at this as a US phenomenon, which is partly a strange duck in the oil swan pond. The US markets are at present in turmoil, with companies fighting for survival, banks calling payment of debts and producers not willing to cut or unable to cut. The WTI will have its repercussions for Brent and others, but the latters will not become negative.”
He went on to add that market for Brent and others is still there, and influx futures also less.
“Brent is being hit, for sure, but a bloodbath is not expected. Outside of US market, global markets are much more flexible and have more options than in the US (where all is more or less based on Cushing),” the expert concluded.
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