<article><p class="lead">WTI Nymex crude futures' unprecedented plummet into negative territory today reflects the panic over growing US oil inventories that could feed the anxiety among producers, lawmakers and regulators.</p><p>Nymex WTI May light sweet crude futures fell by $55.90/bl to settle at -$37.63/bl on the second-to-last day of trading for the May contract. The more heavily traded June contract eased by $4.60/bl to $20.43/bl. </p><p>Ice June Brent fell by $2.51/bl to $25.57/bl. The June Brent-June WTI spread widened to $5.14/bl.</p><p>A global crude oversupply created by crashing demand following efforts to slow the spread of the Covid-19 pandemic has led to surging inventories, prompting companies to slash production. In the US the situation is particularly acute, with about 57pc of total crude storage full at 503.6mn bl as of 10 April, and storage at the key Cushing, Oklahoma, storage hub 69pc full, at 55mn bl.</p><p>Crude futures prices are supposed to reflect supply/demand fundamentals, even though the largest volumes of trades are usually done by business that have no intention of taking physical delivery of crude. The May WTI contract's consistent discount to June WTI in recent weeks reflects the shrinking storage options — the front month discount to the second month was just $1.20/bl in March. But the problem was compounded in the closing days of the trade month because the contract is settled by physical delivery at Cushing. Storage at the Oklahoma facility is expected to be full within weeks. </p><p>"This issue is most intense for May WTI because oil demand is at its weakest, with full coronavirus containment measures in place across much of the US," said Ann-Louise Hittle at consultancy Wood Mackenzie. "WTI May expires tomorrow and with adequate storage in Cushing unavailable to those who need it, selling intensified in the May futures contract." </p><h3>Cutbacks abound</h3><p>US operators have so far pledged publicly to cut production by about 372,000 b/d of oil equivalent (boe/d), or by about 6pc, to 5.7mn boe/d. Key Bakken operator Continental Resources announced the steepest reduction to date of 30pc for April and May, to 238,000 boe/d. <a href="http://direct.argusmedia.com/newsandanalysis/article/2096959">ConocoPhillips</a> said it would cut 2020 output to 1.05mn boe/d, while <a href="http://direct.argusmedia.com/newsandanalysis/article/2090421">Occidental</a> and <a href="http://direct.argusmedia.com/newsandanalysis/article/2087734">Hess</a> also plan significant cuts.</p><p>Today Canadian integrated oil company Husky joined the fray and said it <a href="http://direct.argusmedia.com/newsandanalysis/article/2097803">has reduced</a> crude throughputs by 40pc at its Ohio refineries and suspended rebuilding efforts at its damaged 45,000 b/d refinery in Superior, Ohio.</p><p>This comes on the heels of <a href="http://direct.argusmedia.com/newsandanalysis/article/2097580">Marathon Petroleum's plan to temporarily idle</a> its 166,000 b/d refinery in Martinez, California, beginning on 27 April, because of the lower demand. </p><h3>More pressure, more problems</h3><p>The negative price today could also increase pressure on companies riding a thin line between solvency and bankruptcy, and adjust the calculus for lawmakers eyeing more support for oil companies.</p><p>Consultancy Rystad Energy said today's price collapse makes even larger production shut-ins and bankruptcies much more likely. If shut-ins happen in the next month "... then we can begin discussing optimism in June," Rystad said in a note today. "But right now, given the likely low compliance of OPEC+ cuts by May 1, the optimism is not yet warranted, and we could see a repeat situation next month."</p><p>The Trump administration has sought ways to help oil producers through the price crash, including offering to absorb some of the supply glut into the US Strategic Petroleum Reserve (SPR). The government will lease 23mn bl of the currently available 77mn bl of SPR capacity to private-sector producers. If the picture painted by negative crude prices is ugly enough the administration might get support for ideas that once seemed out-of-bounds, such as paying producers to keep oil in situ instead of supplying the market. This would effectively reclassify commercial reserves into strategic stocks.</p><p>And even in Texas, the negative price could create change. The Texas Railroad Commission, the state's primary energy regulator, meets tomorrow, its first regularly scheduled meeting <a href="http://direct.argusmedia.com/newsandanalysis/article/2096248">since a hearing last week</a> over whether to resurrect a rarely-exercised power to require production cutbacks. While many major producers spoke out against the move, today's dramatic price swing could sway regulators otherwise.</p><p class="lead"><i>By Eunice Bridges, Manash Goswami and Tom Fowler</i></p></article>
