Front month WTI Futures plunges to negative $37 as storage costs rocket

It was a move of epic proportions in the front month WTI Crude futures, the significance of which is not really known of yet, but was incredible to watch.

In what was a relatively normal day in the stocks, spreads, held steady for S&P/Nasdaq and S&P/Dow, but in the Energy space, WTI futures which saw the expiry of the front month continued to trade under pressure. 

May WTI futures were already down 40% on the day in the morning, continued lower as positions had to be either rolled over, or closed out, or otherwise risk taking delivery. It appeared that traders were waiting for the May-June spread to narrow as the roll was a massive $7 over the past few days, but this did not pan out, and so due to lack of liquidity, and the number of contracts that had to be traded out we saw sharp decline in futures, to the point where they went below zero, and to a low of -$37 and change before rebound to trade just above $1. So in theory this meant if the futures closed around the low, you would take delivery of 1K barrels of oil as well as be paid $37K for the privilege. 

Due to the massive over supply and the lack of storage options, with the storage costs at all time highs, being left holding till expiry was the last thing anyone wanted to do, to the point it went to this extreme to get out.

Longer term, it is a real tell of the current environment. We have what would have been classified as a very low risk probability of a pandemic which has paralyzed demand, on top of which a supply war between Saudi Arabia and Russia, which has flooded the market with supply, to the point where they cannot give it away for free.

The June/July spread currently is around -$5.50, remaining in contango, infact much of the front part of the curve is in contango representing the fear of supressed demand and huge storage costs.

I wouldn't be surprised if we drop to below $10/bbl again, although I cant see the price action to be as outlandish as it was today.

Stock markets surge as the Covid cases in Europe start to flatten

US markets rallied over 7% across the board with strong gains in Europe, as Spain and Italy showed slowing growth of Covid-19 spread, whilst New York, the epicenter of the Virus in the US is also leveling.

Over the weekend the the rhetoric from the Surgeon General in the US painted a bleak picture, warning that the US will face one of the worst weeks of the Virus outbreak, while on the other hand positive numbers out of New York suggested the tide is turning. Eitherway the markets surged, and in some respects was entirely expected, going against the bleak weekend warnings, as the momentum continued to build through the day, as the short term bottom seems to be in place.

The ES/YM spread was interesting, as relative ES strength in the morning gave a good opportunity to short the spread, which then saw a nice turnaround coming into the close, as relative strength in Boeing which ended up almost 20% helped the YM outperform, and so a nice 100 tick reversal from the high in the spread.

On the energy front, Crude Oil dropped over 7% as the proposed OPEC+ meeting was delayed due to 'Technical' reasons, putting into doubt the projected oil production cuts, which saw Crude rise sharply last week.

Front month crude calendars, went offered as you would expect, with May-Jun Calendar approaching end of March lows, while Jun20Jul20 calendar appraoches the 50% fib level from the Mar 29th-April 2nd move. The Jun/Jul/Aug 1 month butterly trades back at recent lows, whilst the Jul/Aug/Sep butterfly has consolidated in the -0.40 to -0.30 range.

In general today saw most assets rise, with Gold and Silver up sharply, along with Stocks. Over the past couple of weeks has seen opposing action following a big up move, so it will be interesting to see if that pattern holds tomorrow.

Crude Oil spikes in potential production cut

It was quite the move for Crude Oil futures as a tweet from President Trump suggested potential coorperation on a production cut, as Crude futures were continuing to slide. Crude futures jumped as much as 45% before fading half the move with the crude calendars spiking on the news before fading much of the move.

 The front month calendar moved 160 ticks, and while crude futures have managed to hold on to some of its gains the front month spreads have seen retraced most of it.

Equities have had good two sided action, as we came into the US session with strong gains, a weaker IJC number saw a strong sell off before the oil comments pushed it back up again. We now trading roughly mid range as the markets chop.
The Dow-ES spread has remained steady, whilst the Nasdaq is underperforming. Overall spread action has been steady as the volatility spikes have died down, but the magnitude of the moves are still present.
Markets look weak still, and after the run up last week, seems like we going to probe lower, as businesses continue to layoff workers, and creidt lines continue to be drawn.