Andy Hall Says “Unlikely” We See Negative WTI Again, But Doubtful On “V-Shaped” Recovery In Oil

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Andy Hall Says “Unlikely” We See Negative WTI Again, But Doubtful On “V-Shaped” Recovery In Oil

Longtime oil investor Andy Hall says he thinks it is “unlikely” that we ever wind up seeing negative WTI pricing again, calling the move in the commodity “pretty shocking” in a Bloomberg TV interview on Friday. 

The main question, he contends, is whether or not the industry is going to see a “V” shape recovery from here. And he doesn’t seem to be confident that it’s going to be anytime soon.

“How quickly are people going to go back to their prime behavior, I mean, maybe in some respects the answer is never,” Hall said, talking about a potential recovery. Instead, Hall says he sees a major recalibration of demand for oil globally.

“There’s a thought now with production being shut in, rig counts falling, investment in future supply being reduced, that we’re potentially setting ourselves up for a potential future supply shock, but all this production is not going away, it’s all potentially there, and can be brought back fairly rapidly,” he continued.

He then urged investors away from oil: “Personally, I think there are better ways to invest one’s money than trying to predict these chaotic movements.”

Recall, on April 20, the May WTI contract made history after it settled at negative $37.63. On the same day, the June contract finished the day down 18%.

We took the time on April 20 to explain why we thought the negative oil prices had happened in the first place.

“This happens when a physical futures contract find no buyers close to or at expiry,” we wrote. 

A physical contract such as the NYMEX WTI has a delivery point at Cushing, OK, & date, in this occurrence May.  So people who hold the contract at the end of the trading window have to take physical delivery of the oil they bought on the futures market.  This is very rare.

It means that in the last few days of the futures trading cycle, (which is tomorrow for this one) speculative or paper futures positions start rolling over to the next contract. This is normally a pretty undramatic affair.

What is happening today is trades or speculators who had bought the contract are finding themselves unable to resell it, and have no storage booked to get delivered the crude in Cushing, OK, where the delivery is specified in the contract.

This means that all the storage in Cushing is booked, and there is no price they can pay to store it, or they are totally inexperienced in this game and are caught holding a contract they did not understand the full physical aspect of as the time clock expires.

You can watch Hall’s interview with Bloomberg here:

Tyler Durden

Sat, 05/02/2020 – 18:25

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