On the WTI Crash
Monday, April 20, 2020
Worst squeeze ever. But even today’s demand can’t be supplied at twice these prices.
Today’s crash in WTI oil is a technical phenomenon, the storage-squeeze we predicted a month ago. It is driven by the inability of longs in the expiring lead-month futures to arrange storage for physical delivery. Second- and third-month contracts are trading at twice the price. Demand is impaired to be sure, but it has seen the worst. OPEC+ production cuts are imperfect, but will help, and they make last month’s internal price war only a memory. Even severely constrained demand cannot be supplied sustainably at present prices.