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West Texas Intermediate oil pancakes! Under $1 per barrel and sinking

Written By | Apr 20, 2020
oil stocks, Chinese techs

Wile E. Coyote must have added oil stocks to his portfolio at the wrong time. (Warner Bros. cartoon image mod. by the author)

WASHINGTON – It’s been a hell of a Monday on Wall Street, particularly if you’re still holding an April contract for West Texas Intermediate (WTI) crude oil. Last time we (just barely) looked at the price, around  1:45 p.m. ET, the price of WTI was less than $2 bbl. At 1:55 p.m., the price stands at $1.66. A carnival barker at this point might shout: “How low can she go?”

Answer: Who knows. Anecdotal reports are popping up claiming Canadian crude is now priced in negative numbers per bbl. As mom used to say, “Wonders never cease.” Likely, she wasn’t talking about this kind of wonder. What’s happening today in the oil patch probably has long-time oil veterans gasping for breath. CNBC has more in a recent report.

Details on Monday’s crude oil swan dive

“U.S. crude prices plunged to their lowest level in history as traders continue to fret over a slump in demand due to the coronavirus pandemic. The price of the nearest oil futures contract, which expires Tuesday, was the hardest hit, detaching from later month futures contracts with a drop of more than 90%. This suggests that some believe there could be a recovery later in the year.

“West Texas Intermediate crude for May delivery tanked 92%, or $16.76, to $1.38 per barrel, its lowest level on record. Meanwhile international benchmark, Brent crude, which has already rolled to the June contract, traded 6.2% lower at $26.35 per barrel. The June WTI contract, which expires on May 19, fell about 10% to $22.54 per barrel. The July contract was roughly 5% lower at $28 per barrel.




“The front part of the oil futures ‘curve,’ which is the May contract that expires on Tuesday, was hit the hardest since it applies to fuel that’s set to be delivered while most of the country remains on lockdown thanks to the coronavirus. There’s little demand for gasoline from refineries, and storage tanks in the U.S. are nearing their limits.”

No one’s at the pumps

It’s no wonder the price of oil has face-planted today. The Feds have convinced a great many Americans to bolt their doors and stay inside. Meanwhile, at least a few statist Democrat governators have gone full-tyrant, essentially condemning citizens of those states to the equivalent of house arrest.

Hercules vs. the hydra. Illustration by Gustave Moreau. Public domain image via Wikipedia entry on the hydra. (Greek mythology)

This now overly extreme reaction is simply not helping either US citizens or businesses to start looking ahead to the day when they and the nation can begin the long climb back to some semblance of personal and economic normalcy.

It’s a push-pull really. Cleverly-worded polls recently proclaim that more Americans fear opening the front door than not having a job. But that’s a questionable outcome, given that without a job, most Americans won’t havea front door to shut. Clearly, health and economic needs require some balance here if we’re ever going to recover in a reasonable period of time.

But, unfortunately, both the media and partisan Democrats, having failed utterly to throw President Trump out of the White House – first via the absurdly fatuous and blatantly partisan Mueller Report and next via the arguably seditious House impeachment farce – now have their pipe dream at hand. Namely, a country on the verge of a major recession. On that’s likely already underway. This wretched, hydra-headed media/Democrat tag team loves what’s happening right now, because they think this may be the only way they can get Orange Man Bad out of office, soon and for good.

That’s been their goal all along, and the hell with what happens to the average American citizen. Or oil companies for that matter. Hence, the West Texas Intermediate vanishing act today. (Although the Saudis and Russians haven’t helped.)

Politics “trumps” common sense in today’s markets

I hate to bring up the political component in all this, but there it is and that’s the way the market has been trading since late February, with Democrats and their media stooges flogging markets down every step of the way. They’ve been longing for a serious recession since the beginning of last year. But despite their cheering, they weren’t getting it. Until now. What remains to be seen, though, is how long the recession might last. And that’s the topic for another column.

Meanwhile, as I punch this report out, WTI has declined to 39 cents per barrel. You read that right. 39 cents. (Ooops, now 24 cents. Now 17 cents. Double oops: Now it’s down to a negative $14 bbl. and still sinking!) Holy simoleons, Batman!

This all makes for a swell, scary column. And heck, CDN needs the eyeballs.

And now, some technical reasons for today’s historic WTI plunge

But in fact, a lot of this spectacular drop today is due to the current oil contract expiring Tuesday, to be replaced by the May contract at a higher price as noted above. Does this seem weird to the average American? Yes. It seems weird to me. But there are reasons for this. Just check out my earlier column today for details on how the whole oil futures trading system works. Or doesn’t. At least this afternoon.



Also, search YouTube with keywords “oil prices” and “contango.” There are numerous videos explaining these key topics if you want to drill down. The ones from the various brokerage houses are perhaps the most useful.

Needless to say, the WTI fun and games has generated plenty of negative pin action nearly everywhere else in the market. Consider the massive influence oil prices have on nearly everything we buy and sell today and you can see why.

Wrapping things up. For now

Again, as I type this column, the Dow, which opened down hard Monday morning before recovering somewhat is now resuming its earlier decline. As of 2:20 p.m. ET,  it’s piling on a 42 point decline, a current loss of around 1.55% on the day.  And it looks like it wants to fall further. But you never know these days.

The broader-based S&P 500 average is off a bit less, percentage wise, while the tech-heavy NASDAQ continues its own version of #Resistance. It’s currently off only -0.33%. That’s essentially flatline in this kind of market. But it’s anyone’s bet as to where things will end up at Monday’s 4 p.m. closing bell.

Don’t miss the next thrilling episode. I’ll be back again later if the situation breaks significantly. So stay tuned.

UPDATE: PS: WTI closed at -$37.00 per barrel. That’s a negative number. We live in strange times, indeed.

— Headline image: Wile E. Coyote launches a familiar journey, courtesy of West Texas Intermediate.
(Warner Bros. cartoon image mod. by the columnist.)

 

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17