Nymex crude rises on eve of expiration: Update

Adds settlement price; other details.

The expiration of the June WTI crude futures contract comes tomorrow without the same drama and trauma as last months' expiration, thanks to a change in market fundamentals and in the make-up of market participants.

Nymex WTI closed today at $31.82/bl, a far cry from the -$37.63/bl seen on 20 April, the day before the expiration of the May contract. The May contract expiration came as the market came to grips with just how quickly US crude storage levels were rising and demand was falling on Covid-19-related travel and work restrictions.

Crude markets are markedly different one month on as producers, particularly US shale operators, have announced sharp reductions in capital expenditure (capex) budgets, abandoned drilling plans and idled rigs, relieving some pressure on storage.

The volatility may have also abated as the market has fewer retail investors now than a month earlier after many of them posted steep losses.

Production cuts take hold

In the month since the expiry of the May contract the market has moved in the direction of greater balance, with widespread crude production cuts. Opec+ nations reached an agreement to curtail 9.7mn b/d of crude in May-June, moderating to 7.7mn b/d across the second half of the year.

Many individual producers have also announced significant cuts, including Continental Resources which cut about 70pc of its oil production in May, and ConocoPhillips which is cutting by 20pc.

US crude production could fall by as much as 2.8mn b/d by the end of 2020, as it becomes the biggest contributor to global supply reductions, the IEA said in a report last week.

Estimates on North American production cuts so far vary greatly. Pipeline operator Plains All American said in an earnings call this month that it estimates between 3.5mn-4.5mn b/d of US and Canadian production has been curtailed.

The Energy Information Administration (EIA) said stocks at the key Cushing, Oklahoma, hub eased by 3mn bl to 62.4mn bl in the week ended 8 May. It was the first draw after nine weeks of builds during which the hub had swelled by more than 28mn bl.

Another major difference between the May and June WTI expiries is in the make-up of the market. A relatively large number of retail investors remained in the May contract until the penultimate day of trading, leading many to take large losses as they scrambled to close out their positions. Since then retail brokerages — including TD Ameritrade and Marex Spectron — have limited customers' investments in commodities futures in response.

And US Oil Fund (USO), one of the largest exchanged-traded products (ETPs), said last month it exited the June contract because of "evolving market conditions."

Easing restrictions

Crude prices are also starting to see support by an easing of Covid-19-related travel restrictions, which is helping revive demand growth expectations while production shut-ins take effect.

In the US, recent EIA reports have [shown a rebound](http://direct.argusmedia.com/newsandanalysis/article/2104908) in US gasoline consumption, with implied gasoline demand rising to within 20pc of year-earlier levels in the week ended 8 May as more states loosened restrictions.

The WTI contract could move above $35/bl by July and then pull back, as rising prices reduce shut-ins and summer fuel demand peaks, Bank of America Merrill Lynch (BoAML) said. But the pullback in spending by almost all producers may lead to tighter supplies by year-end, possibly pushing WTI above $40/bl, it said.

Despite the bullish factors, the US Commodity Futures Trading Commission (CFTC) last week told exchange operators, brokers and clearing houses they should be prepared for the potential return of negative prices in contracts for oil and other commodities.

The CFTC, in a six-page advisory notice, reminded registrants about the preparations they are expected to take in light of the unprecedented conditions created by the coronavirus.

By Eunice Bridges and Manash Goswami