On the WTI Crash

Donald L. Luskin
Michael Warren
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. 
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Michael Warren and Donald Luskin