Oil Retracement Short-Lived?

Oil prices once again plunged after a short-lived bullish rally, falling to nearly $10 a barrel.

This move comes as the S&P Global unexpectedly told clients to sell their June West Texas Intermediate holdings out of fear oil could reach negative prices once again. More than 40% of the June contract has been liquidated, we are now seeing a shift of contracts rolling over to later months e.g. September futures jumped 20%.

The world’s largest oil ETF, United States Oil Fund LP abruptly starting selling its front month WTI futures contracts, creating turmoil between the June and July future contracts. As a result, from this selling alone, June futures plunged by 25% and the June-July spread has widened significantly. This decision came as the ETF had come under pressure from its broker.

Traders are taking advantage of the United States Oil Fund LP regulatory framework, which requires them to disclose the exact contracts they are selling and buying. Traders are using this to buy/sell time spreads in advance.

Russia have also warned that there will not be a quick solution to the low oil prices we are witnessing, citing that oil markets may start rebalancing in the second half.

There is simply too much supply, not enough demand and not enough storage space to bolster real upside in oil prices.