MOSCOW, May 18. /TASS/. A new collapse of the WTI oil price below zero may happen already on May 19, the day when the circulation of a June futures contract for this oil blend expires, experts interviewed by TASS said. They noted that the chances for it are small but the possibility is not ruled out.
Last month, for the first time in history, the cost of a May futures for WTI crude collapsed to a negative value of minus $37.6 per barrel, which caused a panic in the market.
Experts note that the collapse was only partially triggered by a drop in oil demand and a lack of storage facilities, so a repetition is possible in the current market conditions.
"That situation was related to financial instruments, not to filling the storage facilities, because even the oil that was purchased at a negative price is now stored somewhere. WTI and Brent trading is primarily paper trading, so the possibility of a negative price remains, although the risks are much smaller," Andrey Polishchuk, an analyst at Raiffeisenbank, told TASS.
Vasily Tanurkov, head of ACRA's corporate rating group, also believes that storage capacity was not the only factor that led to the negative price. In many ways, the situation was affected by the list of investors who at that moment dominated on the stock market. "[On the day of expiration of the May futures circulation - TASS), this was even more important than to the filled capacity of the storage in Cushing (the largest oil hub in the United States, which receives WTI oil - TASS)," he says.
Tanurkov noted that in April, USO, the largest oil fund in the US, accounted for 20-25% of all contracts in WTI with settlement in May and June. Only after the price collapse on April 20, the exchange obliged USO to reduce the number of positions for the June futures tenfold - to 15,000 contracts and to 78,000 - for the July contract. The collapse of the May futures occurred just at the moment when the USO began to sell May contracts to switch to longer positions.
Now there are few speculators left in comparison with the situation in April, Tanurkov says. According to the Moscow Stock Exchange, if on April 20, Russian investors owned 74,3000 WTI contracts, then by May 14 their number in this futures reduced 3.5 times - to 21,000. At the same time, the position of individuals decreased by 9 times - to 2,700.
What can bring oil price below zero?
Timur Bayanov, senior personal broker for international markets, BCS Broker, also pointed at factors that will put pressure on the price on the day of the June futures expiration.
"Oil prices may again become negative for reasons other than storage only. The global market players are monitoring the amount of oil storage available to try to figure out when the top of the tank is full. However, there are two other events that are unexpected but important and can hastily lower oil prices," he says.
The expert from BCS Broker said that the Chicago Mercantile Exchange has recently raised requirements for forward and June oil contracts. Now it will demand their margin of $10,000 for every 1,000 barrels.
"Simple math tells us that $10 per barrel is a key level to observe. If the oil price drops below $10, this can lead to a margin call (a warning from the broker about a possible forced closure of the position - TASS). This can lead to an increase in number of sales, which will in turn lead to lower prices," he says.
Why are chances for negative oil price small?
Despite all these factors, the chances of a repetition of the situation with a negative price for WTI crude oil are insignificant, as players and exchanges have already drawn a conclusion from the current situation and will try to prevent it, experts say.
For example, from May 19 to April 30, the Moscow Exchange postponed the expiration of the Light Sweet Crude Oil futures, the underlying asset of which is the June futures contract for WTI delivery. Thus, Russian players will not become hostages of panic on the US stock exchange. On the other hand, no one forbids them to work through brokers.
"The chances are still there (for a negative price of WTI), but they are small. The negative experience affected players and hedgers, and most had the opportunity to protect themselves from repetition, shift in advance to longer contracts if they do not expect to deal with deliveries in June," Finam analyst Alexei Kalachev says.
The leading expert of the National Energy Security Fund Igor Yushkov did not rule out that in the future the trading rules will be changed in the USA, as traders began to demand compensation for losses due to the case of negative prices.
Kalachev also believes that American exchanges will likely have to take certain steps if the incident is considered extreme. For example, they can limit the maximum price deviation during trading.
"If now it becomes a new norm (such negative prices), then, apparently, the rules and sizes of the bookings should be changed to ensure obligations," he added.
"Now the situation is very different from what it was a month ago. There are no huge positions of funds in WTI, the number of speculators in securities has significantly decreased, individual brokers have changed the rules for trading these futures contracts, up to the point that they stop operations with them long before the term of circulation expires," Vasily Tanurkov, director of the ACRA corporate rating group, says.
"No one can guarantee that this cannot happen again. But the situation has changed since then," the expert sums up.