Crude Futures Drop on Week

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange posted mixed results on Friday. Crude moved down on the week, with front-month West Texas Intermediate futures plunging 8.5% on the session ahead of the May contract's expiration on Tuesday (4/21), with traders unimpressed with an OPEC+ agreement reducing crude production 9.7 million barrels per day (bpd) as they anxiously watch storage tanks quickly filling up across the globe.

Russian Energy Minister Alexander Novak and Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman held a phone conversation this week concluding that both producers are ready to take additional measures to balance the oversaturated market as oil prices continued to decline this week despite the April 12 agreement.

On the session, NYMEX May WTI futures dropped back $1.60 to $18.27 barrel (bbl) after falling to a $17.31 nearly 18 1/2 year low on the spot continuous chart. The selloff in the May contract widened its discount to next month June WTI futures, closing at a steep $6.76 premium to the expiring contract at $25.03 bbl.

ICE June Brent futures climbed $0.26 to settle at $28.08 bbl, although fell back nearly 10% on the week. May RBOB futures gained 0.56 cents to $0.7107 gallon and advanced over 6% on week. May ULSD futures climbed 1 cent to $0.9563 gallon, little changed on the week after reversing off Thursday's fresh 51-month spot low at $0.9026 gallon.

The May WTI contract came under heavy selling pressure on Friday as options expired, pressured by a weak physical market as producers slash prices to move product. Plains Marketing, L.P.'s WTI posted price Friday is $16.50 bbl and West Texas Sour at $12.80 bbl.

Price weakness comes as storage facilities quickly fill, with Cushing, Oklahoma, storage at 71% of working capacity as of April 10, up 15% over the past two weeks. Market observers suggest Cushing storage could reach capacity by mid-May, early June at the current rate of inventory builds.

Energy Information Administration data shows crude inventories having increased at an average 16 million bbl per week over the last three weeks. Storage at sea is currently holding an estimated 160 million bbl of oil, a record high, and double the level from two weeks ago, according to Reuters.

Pioneer Resources and Parsley Energy petitioned the Texas Railroad Commission to force a mandatory 20% reduction in oil production by state producers. Pioneer CEO Scott Sheffield believes that market-driven cuts would not come fast enough to prevent an overflow at storage facilities in the coming weeks.

"The industry will be wiped out if cuts are not introduced. We will see oil at $3 to $10 bbl in the second half of the year", projects Sheffield.

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)

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