WTI hits fresh 18-year, front-month low as oversupply concerns mount

WTI settled at a fresh 18-year low for a front-month contract Friday as near-term oversupply concerns prompted selling of prompt-dated contracts.

NYMEX May WTI moved $1.60 lower to settle at $18.27/b, the lowest front-month settle since January 2002. ICE June Brent, in contrast, climbed 26 cents day on day to settle at $28.08/b.

"Oil price volatility went into overdrive as contracts roll, reopening hopes in the US offered some relief for crude demand, but oversupply conditions persist as producers are forced to shut in output," OANDA senior market analyst Edward Moya said in a note. "The consensus remains oversupply conditions will keep oil prices heavy."

S&P Global Platts Analytics now sees 2020 global oil demand contracting by 7.8 million b/d, revised down from a 4.5 million b/d decrease in its March outlook. Oil demand is now projected to contract in every month through December.

"We are seeing a lot of spread trading, buying the back and selling the front," Price Futures Group senior market analyst Phil Flynn said. "By buying the back you are trying to bet which month will return to energy demand."

A sharp contraction in demand caused by global efforts to slow the coronavirus pandemic has sharply widened contract differentials on the front end of the curve. The WTI May contract settled Friday at a $6.76/b discount to the June contract.

"Energy traders who had medium-term bearish bets in the futures markets are not happy. Contract rolls were $3 for WTI crude in the beginning of the month and have widened to $7 per contract," Moya said.

Starting Friday, the US Oil Fund, an exchanged-traded fund that invests in NYMEX and ICE crude oil futures contracts, will shift its position toward holding more forward-dated contracts. The fund, which had previously invested only in the front-month contract, will now invest about 20% of its portfolio in the second-month contract, according to a company filing with the US Securities and Exchange Commission late Thursday.

The fund holdings account for about 25% of all outstanding NYMEX WTI futures, according to Bloomberg News.

Refined product futures moved higher Friday on optimism that a slowing of the spread of the pandemic would allow global economies to reopen in coming weeks.

NYMEX May ULSD settled 1.00 cents higher at 95.63 cents/gal and May RBOB was up 56 points on the day at 71.07 cents/gal.

US President Donald Trump gave state governors a road map Thursday on the gradual reopening of their states' economies in the coming months, according to media reports. The guidelines are aimed at easing restrictions in cities with lower coronavirus disease transmission rates.