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After negative close last month, WTI crude trades at $30 ahead of expiry

After negative close last month, WTI crude trades at $30 ahead of expiry

After negative close last month, WTI crude trades at $30 ahead of expiry
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By Manisha Gupta  May 19, 2020 2:28 PM IST (Updated)

Crude oil prices are up more than 45 percent in May and trading at their highest in two months. It marks quite a comeback ahead of the WTI June contract expiry.

Crude oil prices are up more than 45 percent in May and trading at their highest in two months. It marks quite a comeback ahead of the WTI June contract expiry.

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The India crude expiry took place on May 18 and was settled smooth, unlike the April 20 expiry when the markets witnessed panic and sell off. At the time, the extent of damage that the conoravirus pandemic inflicted on the global crude demand resulted in global storages filling to capacity and the sellers had to pay nearly $40 a barrel at the June expiry to get rid of the oil on their hands.
The coronavirus-forced lockdown across the world led to demand destruction from the aviation, travel, trade and transportation sectors.
From a negative $40 a barrel during previous expiry to a sold $30 a barrel at current expiry is some comeback. Governments around the world are slowly lifting travel restrictions and businesses have started to reopen gradually.
The US Commodity Futures Trading Commission, the US federal agency that oversees futures and options trading, did issue a rare warning to the exchanges and brokerages to be cautious and prepare for volatility. CME Group, the world’s largest financial derivatives exchange, increased maintenance margin by 20 percent for a second time in a month.
The oil producers have cut back on production in May. The Organization of the Petroleum Exporting Countries (OPEC) and its allies cut production by 9.7 million barrels per day, which remains in effect through May and June.
Major producers like Saudi Arabia, Kuwait and the United Arab Emirates have indicated more cuts than allotted under the agreement. Further, output cuts from Brazil, Norway and Canada are also in the offing as crude demand dips and inventories surge making it difficult for the producers to stay in money on high-cost crude production.
The US production is down 1.5 mln bpd from a record 13.1 mln bpd in March. The US rig count has also continued to decline with the current number at 258 which is just a third of the last year. The inventories in Cushing, Oklahoma also declined by 3 mln bpd, supporting the prices.
The volumes though have already moved on to the next month’s contract.
In April’s expiry, the exchanges that trade contracts based on WTI crude— in China, Russia, Singapore, Australia, India—the investors lost a lot of money.
In India the brokers have gone to courts challenging the negative crude pricing by the exchanges. The Bombay High Court is hearing three cases while the Rajasthan and Delhi high courts have a case each.
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