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18 Mar 2020

WTI stabilizing just ahead of the 2016 lows

  • WTI close to the 2016 lows with no end in sight for crude.
  • COVID-19 has taken its toll and demand implications keeping lower prices for longer.

West Texas Intermediate crude came in a stone throw of the 2016 lows on Tuesday in the US session but bounced late in the day and is currently trading in a correction a $26.85bbls with an Asian session low of $26.65bbls and a high of $27.21bbls.

The New York session low was $26.59bbls, a four year low, and the 2016 low is $26.08bbls. The market is short, convinced that the global spread of COVID-19 and the combination of an increase in supply as Russia and Saudi Arabia engage in a global price war will keep prices lower for the foreseeable future. Consequently, WTI crude for April delivery dropped by $1.75, or 6.1%, to settle at $26.95 a barrel on the New York Mercantile Exchange, even as the US announced stimulus measures hat lifted the US stock markets. 

Analysts at Westpac explained that the US government has proposed USD850bn of stimulus which could include individual cash payouts of at least USD1000 that they hope could be received within 2 weeks. "It is also seeking a period of tax deferrals (equivalent to USD300bn of support). The US Treasury/Federal Reserve also announced a new Commercial Paper Funding Facility to help businesses manage their finances through the COVID-19 disruptions."

There appears to be no end in sight for crude

"There appears to be no end in sight for crude as WTI prices settle in the high $20/bbl range, while Brent crude has also fallen below $30/bbl for the first time in four years, with the WTI-Brent differential now closing to less than $1/bbl as OPEC/Russia flood the market," analysts at TD Securities argued:

"The latest news that Saudi Arabia would boost exports to a record high of 10m bpd, over 2m bpd more than the previous high, is just the latest sign that the price war is here to stay. In terms of CTA flows, we do not expect any material changes in positioning as funds are already positioned extremely short in the complex and elevated volatility will continue to constrain position sizing.

WTI levels

 

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