Crude Oil Won’t Be Negative This Month
History seldom repeats itself especially in the crude oil market. Many have lost a fortune when front-month WTI contracts went negative $37.63 last month. Many are anticipating that this month the WTI will dip below zero again but our analysis shows that crude oil price will most likely not be negative this month.
Price Trends Says Negative Price Is Unlikely
Considering the latest price data for the year 2020, the probability of negative oil price is slim to none based on both charting trends and fundamentals.
The chart of forward curves of April 15th, 2020 was coming from flat contango curve into negative territory whereas for June WTI crude oil expiration is on a much steeper contango curve which is a completely different pattern. Comparing both points on a different set of curves on May 13th, 2020, and April 14th tells us that strength of crude price momentum is very different between these two months. Simply put, April price momentum was a lot weaker than May putting the chance of going negative, in our opinion unlikely.
Looking at another set of indicators, the May-June spread was $7.29 and June-July is only $1.64. Open interest for April 14th was 785,478 while June open interest is 179,591. With 4 sessions to go, it is unlikely that June open interest will increase 4 times of May. I am not saying that it is impossible but the probability is very low.
With the lower spread and open interest, the expectation of significant crude price movement is extremely unlikely, giving it little chance of moving beyond three-sigma statistically.
Crude Oil Fundamentals – Negative Prices Not In the Card
On the fundamentals, with more states reopening and more people driving, the Cushing, Oklahoma storage inventory is decreasing according to EIA. Looking at May 13, there is additional draw of 1 million BBL higher than forecasted, casting the notation that forward months from June to September, there might be even higher draw than forecast. For now, storage is not a significant driver in the crude oil price movement.
With summer vacation on the horizon and limited air travel options, most summer vacation will be localized and road trips. That only means more gasoline use and possibly higher gasoline prices at the pump.
All our analysis does not take into consideration of re-shut down of United States economy due to the second wave of COVID-19. We believe that, in the short-term, this is not a likely scenario in early summer.
For our analysis, we are using EnHelix Big Data and forecasting technology to analyze historical, spot, and forward prices with what-if scenarios.
In conclusion, we are not expecting negative WTI crude oil prices for May expiration and we will follow up if our hypothesis is correct in our next article.
Will Crude Oil Goes Negative?
Crude oil for May expiration will not go negative based on strong contango forward price movements and decreasing crude oil inventory. Both factors will are significant metrics used by oil traders and analysts.