May-June WTI Spread Narrows

WASHINGTON (DTN) -- After Monday's historic session with May West Texas Intermediate futures trading at a negative $40.32 barrel (bbl), the New York Mercantile Exchange traded contract expired Tuesday at $10.01 bbl, a 127% gain, converging with the June contract several times during the session, with June WTI futures settling down $8.86 or 43% at $11.57 bbl in heavy volume at more than two million contracts.

The selloff in the June WTI contract reflects heavy long liquidation following Monday's distressed selling in the May contract, as the arbitrage at the front end of the curve becomes unattainable to capture unless the buyer prearranged leased tankage. The June contract could turn negative in the coming weeks as nobody wants physical supply as available storage fills up. Reports indicate pipeline operators are telling producers they need to provide proof they will be able to move the supply off the system because they don't want the stranded oil.

Negative oil prices clearly put a scare into producers as the Organization of the Petroleum Exporting Countries held an emergency conference call Tuesday to discuss deeper production cuts on top of the existing 9.7 million barrels per day (bpd) deal reached April 12. The Wall Street Journal reported the cartel is considering May 10 as a potential day for an extraordinary meeting, although there was no indication Saudi Arabia, the United Arab Emirates and Kuwait plan to participate.

International Energy Agency Executive Director Birol Fatih urged the group should consider swifter and deeper output cuts to arrest "troublesome developments" in the market. Russia's Energy Minister Alexander Novak thinks the oil market will remain under extreme pressure until the OPEC+ deal takes effect in May.

Reuters reports Russia's energy ministry has told domestic oil companies to reduce production by 20% from their February output rate which is estimated at 11.29 million bpd, with Russia agreeing to reduce production by 2.5 million bpd under an international accord.

Intercontinental Exchange June Brent futures dropped $6.24 or 22% to settle at $19.33 bbl, easing off a $17.51 19-year low on the spot continuous chart.

NYMEX May ULSD futures swung to a 17-year low on the spot continuous chart at $0.7269 gallon, with May RBOB futures down 15.8 cents at a $0.5103 gallon one-month spot low.

The Texas Railroad Commission on Tuesday delayed a vote on a petition to require producers in the state to cut production by 20%, with two commissioners, Wayne Christian and Christi Craddick, indicating they want legal counsel from the state's attorney general before voting. Commissioner Ryan Sitton backed a 1 million bpd production cut. TRRC will vote on the petition on May 5.

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

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