Oil glut persists dropping future prices further

Bloomberg/Fuel Fix:

Oil fell after the biggest oil ETF said it would sell out of its June WTI futures position as physical oil storage levels continue to balloon.

Futures in New York slid as much as 30%, snapping a four-day recovery as the United States Oil Fund LP said it will move all the money it invested in the front-month June WTI oil contract starting today, triggering a massive swing in the price relationship between the June and July contracts. At the same time, the global oil market is on track to test storage capacity limits in as little as three weeks, requiring the shut-in of nearly 20% of global production, according to Goldman Sachs Group Inc.

“Some of this downward pressure particularly in the June contract is an increasing lack of liquidity,” said John Kilduff, a partner at hedge fund Again Capital LLC. This is not coming only from the USO, but also due to brokerage firms, like Marex Spectron and TD Ameritrade, restricting client’s abilities to add new positions to certain crude contracts, according to Kilduff.

“It’s going to exacerbate the whole marrying of the June contract with the over supplied physical conditions and the lack of storage,” Kilduff said.

While U.S. drilling is sliding and Saudi Arabia has started reducing output ahead of the start date for OPEC+ supply cuts, an immense surplus of oil means storage tanks are close to capacity around the world. OPEC+ expressed frustration by the lack of oil cuts by other nations. Equatorial Guinean Oil Minister Gabriel Obiang Lima said on a conference call that producers such as the U.S., Mexico and Norway need to chip in with supply cuts.
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Actually, the markets are imposing supply cuts in the US.  The current rig count is less than half what it was a year ago.  The reopening of business in some states in the US should result in burning off some of the glut with people going back to work and shopping again as more stores open.  Currently gas is selling locally for about $1.66 a gallon in this part of Texas.  It is likely even cheaper at some Houston stations.

Getting people back in their vehicles is also a good way to continue social distancing, as opposed to using mass transit systems.