Oil Posts Big Weekly Gain But Caution Remains Ahead Of Contract Expiration

By Glenn Dyer | More Articles by Glenn Dyer

Last week saw another solid week for oil, but there’s a nervous couple of days today and tomorrow as the June futures contract for West Texas Intermediate crude rolls over into July on Tuesday night, our time, with traders still well aware of the debacle a month ago when prices plunged to a previously unthinkable minus $US37 a barrel.

That was driven by slumping demand, too high production and fears of not enough storage for the unwanted surplus so buyers who had bought June contracts suddenly realised they may not have been able to store the oil had they taken delivery, or might have been forced to store it is they could not have palmed it off to another buyer or rolled forward into future months.

The biggest oil tracking Exchange Traded Fund (ETF) was the major holder of unwanted June contracts and found it hard to roll forward its deals.

The intense selling pressure drove prices down to zero and deep into levels never seen before until the contract settled at more than minus $US37 a barrel.

Brent crude futures were not directly impacted but suffered some collateral damage from nervy traders.

Since then many holders, such as the ETF have rolled forward their contracts into out months (meaning that they are no longer pure price tracker funds). That has eased the pressure and fear levels and allowed US oil prices to rise.

Now as the expiration of the June front month on Tuesday approaches, fear levels have risen, but most analysts do not see a repeat of the April problems.

Oil production is falling faster than expected – especially in the US, storage seems to be holding (and US stocks fell last week instead of rising) and with more and more lockdowns being eased in the US and other countries, it seems there is now upside – and the price of West Texas Intermediate has been reacting positively to that change in sentiment.

So oil futures rose Friday, with the WTI seeing a weekly gain of 19%.

“There remains very little change in the grand scheme of things for what themes are impacting oil at the moment,” Jameel Ahmad, global head of currency strategy and market research at FXTM, told MarketWatch.com. However, “with the upcoming June contract for WTI set to expire this coming Tuesday, anything is, in all honesty, possible for the commodity,” he added.

West Texas Intermediate crude for June delivery rose $US1.87, or 6.8%, to settle at $US29.43 barrel in New York.

Prices based on the front-month contract, which expires at the end of Tuesday’s trading saw that weekly gain of 19%. That was also marked the highest finish since March 13.

July WTI crude, the most active contract, rose $US1.64, or 5.9%, to settle at $US29.52.

in Europe, the global benchmark July Brent crude rose $US1.37, or 4.4%, to settle at $US32.50 a barrel for a smaller weekly gain of 4.9% which was probably the more accurate figure of the two rises.

Helping keep sentiment positive was another big fall in weekly oil rug use data from Baker Hughes on Friday

That showed that the number of active US rigs drilling for oil dropped by 34 to 258 last week.

The oil-rig count has now fallen for nine weeks in a row.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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