NYMEX crude settles lower after dip to $10/b level

NYMEX June crude futures settled slightly lower Tuesday after flirting with the $10/b level on an imminent oil storage crunch.

June crude sunk as low as $10.07/b early Tuesday, but settled at $12.34/b, down 44 cents on the day. ICE June Brent futures settled up 47 cents at $20.46/b.

The NYMEX June contract has been battered well ahead of expiration as growing inventories are met with a lack of storage capacity, especially Cushing, Oklahoma delivery hub that's close to 80% full and rapidly rising.

"I think we're seeing the impact of the small retail investor liquidating their positions in the ETFs [exchange-traded funds] as they move to get out of their June contracts," said Andy Lipow, president of Lipow Oil Associates.

But, after a roughly 25% drop in NYMEX June crude Monday and a continued dip early Tuesday, that pressure finally began to dip later in the day, Lipow said.

Monday's oil fall came as the world's top oil ETF began selling off all of its June contracts in order to invest in more longer-term contracts extending into 2021, moving past the prompt weakness amid the global coronavirus pandemic. The maneuvering by the embattled US Oil Fund has helped widen the gap between both the NYMEX June and July contracts as well as between WTI and ICE Brent pricing.

But that doesn't mean oil prices will hold steady above $12/b as the US is expected to run out of commercial crude storage starting in May. After last week's historic dive into negative pricing, Damiano Galvan and Claudio Galimberti of S&P Global Platts Analytics warned that the June and July WTI contracts could "plunge below zero as well in the coming weeks, as crude tanks fill to the brim in Cushing, the rest of the US Gulf Coast and floating storage."

GEOPOLITICAL UNREST

Crude oil prices also received some potential upward pressure Tuesday after a fuel tanker bombing occurred in the northern Syrian city of Afrin, a mainly Kurdish region that was seized by Turkey two years ago in a military offensive.

Turkey's military and its Syrian rebel allies seized Afrin from the Syrian Kurdish YPG in March 2018 in a major offensive. Turkey's government was quick to blame the YPG Tuesday. Turkey's Ministry of National Defense said about 40 people were killed in the attack.

Edward Moya, a market analyst with OANDA, argued the bombing added some geopolitical tension that helped pick prices back up some. And, while Lipow didn't believe Tuesday's bombing made a big impact on prices, he said geopolitical unrest is a critical factor to watch in oil-dependent countries such as Iraq and Nigeria during this ongoing crash in oil prices.

"WTI crude prices are tentatively respecting the $10/b level, but that might not last as oversupply conditions will have tank tops reached in the coming weeks," Moya said in a note. "Oil trade will remain volatile, but any major relief rallies will likely be heavily sold into until the entire energy space starts delivering deeper production cuts."

In refined products, NYMEX May RBOB settled up 1.89 cents at 66.72 cents/gal Tuesday and May ULSD settled up 2.04 cents at 63.08 cents/gal.