WTI is climbing back to the $30 handle, within a range between $27 and $36 handles
- WTI holding up back to the $30 handle, but pressures mount.
- Analysts at TDS do not expect any material moves as funds are already positioned extremely short.
The price of a barrel of oil is suffering the sap in demand following the impact of COVID-19 and prices are at the lowest ranges since January 2016. The four-year low on Monday occurred as US stock markets plunged on fears that the worst is yet to come as the world goes into isolation, termed as social distancing. An emergency Federal Reserve interest rate cut did nothing to stem the panic and global borders are closing.
West Texas Intermediate crude for April delivery on the New York Mercantile Exchange dropped $3.03, or 9.6%, to settle at $28.70 a barrel after trading as low as $28.03 which was the lowest for a front-month contract since February 2016. The price drops are alarming and it comes at a time when we are in a price war between the Saudis and Russia.
"The combination of both the demand and supply shock suggest massive surpluses, swelling inventories and increasingly depressed prices are on the horizon. While Trump's promise to "fill up" the strategic petroleum reserve (approx +80m barrels) offers some support to US producers, the estimated 400-500k bpd worth of extra demand over an estimated 6-month timeframe to fill the reserve, is just a drop in the bucket relative to estimate lost demand due to the virus. In terms of CTAs, we do not expect any material moves as funds are already positioned extremely short in the complex and elevated volatility will continue to constrain position sizing," analysts at TD Securities explained.
Commodities on the backfoot
For more on the impact, COVID-19 is having on the commodity complex, see here: Commodities to weigh on commodity-FX, watch copper suffer COVID-19
WTI levels