A week after Saudi Arabia and Russia agreed to sizeable production cuts in a bid to prop up crude prices, the value of West Texas Intermediate (WTI), the US benchmark, slumped into negative territory, with US storage facilities swamped by rising stockpiles of crude.
With markets in turmoil, producers have been forced to pay oil trading companies to take the glut off their hands, as refineries put on the brakes and motorists stay at home. May futures for WTI (expiring 21 April) closed out at negative $38.23 (£31) a barrel, while June futures were also under pressure despite the widening of the spread with the prior-month contract.
Future prices are expected to outstrip the current rate. So with the market in contango, there is every chance that the spread on long-dated (Q3 & Q4) futures will continue to widen, providing a potentially lucrative opportunity for oil trading companies with access to alternative storage facilities, or even seaborne capacity.
London oil and gas companies felt the impact of the price drop, even if not many are directly affected by the negative pricing. BP (BP.) and Royal Dutch Shell (RDSB) were both down 4 per cent, while Premier Oil (PREM) and EnQuest (ENQ) plunged 11 per cent. Shell and BP have US onshore production, but Premier and EnQuest’s output is concentrated in the North Sea. Wood Group (WG), which provides oil and gas equipment and services, was down 8 per cent.
Consultancy Rystad Energy said Brent would be “more resilient” because of its spread across multiple grades of crude and “natural egress to seaborne markets”. This means sellers can hunt for higher prices around the world.
Nonetheless, Brent fell below $20 a barrel on Tuesday 21 April, hitting an 18-year low. Rystad said there would continue to be “huge swings” in prices across the board as storage and low demand remain issues in the coming months.
