Risk of June oil futures contract going negative
Oil’s historic slide into negative territory Monday rattled investors globally.
The May contract for West Texas Intermediate crude fell below zero for the time ever as its expiry loomed. That washout spread to the June contract, as WTI for delivery in that month plunged more than 40 per cent Tuesday.
The rout comes as the COVID-19 pandemic creates devastating consequences for demand. And as the supply glut intensifies, storage facilities around the globe are nearing capacity.
Here’s what some experts have told BNN Bloomberg about the unprecedented drop in oil prices, and what could be done to support Canada’s battered energy sector.
“You need demand to come back. You tell me when the public schools will open in California, or New York, or in Toronto for that matter, and I’ll tell you when demand picks up.”
Jan Stuart, global energy economist, Cornerstone Macro
“As brutal as this is – and historic – this is very, very short-term. This is all related to the demand hit from us having to do our shows from our kids’ bedrooms. … You should expect, given this is a very short-term dynamic, energy stocks will diverge from the weakness we see on our screens as people look out to more normalized pricing in the third and fourth quarters of this year.”
Eric Nuttall, partner and senior portfolio manager, Ninepoint Partners
“I think what’s really needed most is financing or credit, or a guaranteed backstop arrangement from the Government of Canada that would enable Canadian banks and other financial institutions to extend more credit to the larger producers here. It’s one thing when a number of small producers go under, but if some of Canada’s largest oil and gas companies run into difficulty – even though their assets are far more than their debts – they just don’t have the liquidity.”
Hal Kvisle, chair, Business Council of Alberta; former CEO, TransCanada
“I do believe that oil prices are probably going to travel in the teens for the June contract. I don’t know if we’ll see a situation like we saw [Monday] – I can only imagine that’s a once-in-a-lifetime type event. I don’t see oil prices going negative again.”
Phillip Streible, chief market strategist, Blue Line Futures
“Everybody is hurting today. Even consumers are not enjoying the benefits of low prices because they’re locked up at home. The only people who enjoy the benefits of this situation are … the people who hold storage capacity, can utilize it and play the contango and really leverage their storage capacity. It’s pretty bad for everyone, but you need the low price in order to get the supply adjustment.”
Antoine Halff, former chief oil analyst, International Energy Agency