Coronavirus in Oklahoma: Virus-caused demand drop sends oil value negative
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Producers of crude oil in Oklahoma and across the nation experienced the unthinkable April 20 when futures prices on contracts for the May delivery of crude oil plunged nearly $40 a barrel during the final minutes of trading that day.
May contracts, which settled the following day, ended down 306%, or $55.90 a barrel, ending that trading period with crude worth a negative $37.63 a barrel.
Contracts for June oil deliveries opened trading at midnight on April 21 at $21.42 a barrel, falling to just $15.36 a barrel by 5:30 a.m. that same morning.
The best market price for June delivery of the product so far since was $17.93 a barrel on April 24.
Monday afternoon, it closed at $12.98 a barrel, off more than 23% for the day, with analysts anticipating another pricing collapse — until and unless the coronavirus pandemic gripping the nation eases enough to allow the economy to begin recovering.
The historic market price collapse for crude on April 20 prompted a complaint from Oklahoma City-based Continental Resources to the Commodity Futures Trading Commission.
In the complaint, Harold Hamm, Continental Resources’ executive chairman, asserted that market manipulation, failed systems or computer programming errors played a role in what happened.
Hamm’s letter noted that the Chicago Mercantile Exchange announced earlier in April it had changed the model it uses to govern crude trades so that negative pricing would be allowed, adding that prices indeed headed that direction after CME officials reiterated on April 20 negative pricing was permissible.
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“The sanctity and trust in the oil and all commodity futures markets are at issue, as the system failed miserably,” Hamm wrote.
Bernadette Johnson, Enverus’ vice president of market intelligence, called the April 20 event “another perfect storm-type scenario that negatively impacts the price of crude oil.”
Johnson noted that because crude is purchased in advance, the price collapse signaled a lack of demand for product that would be delivered during the month.
“Storage is also not an option for many. Outright negative prices are a sign that well shut-ins are imminent and are actually occurring in many places where prices in the field are in the single-digits or, in the case of some crude oil condensates, are negatively priced,” Johnson said.
Enverus predicted the Bakken Shale field will be hurt the worst because of the demand collapse, with about 900,000 barrels per day stranded within shut-in wells.
News reports seem to back that up, with some outlets reporting significant operators like Continental Resources already shutting in wells.
Exploration and production companies, midstream operators and downstream refineries are indeed finding additional room to store crude oil and refined products challenging.
Mike Sommers, CEO of the American Petroleum Institute, noted recently the U.S. Energy Information Administration estimates daily demands for crude have fallen by about 31 million barrels per day globally.
He noted that the number of crude oil tankers being used just to store excess production continues to climb, given that there is limited room in the Strategic Petroleum Reserve to offer through leases.
“We are very concerned about a storage wall that we’re going to hit in late April or early May,” Sommers said.