AAA Forecasts Gas Prices Will Continue to Decline
April 28, 2020
Crude oil was helped to trade lower yesterday by a growing fear of owning the front month June WTI crude oil contract and the ongoing concern that storage is full. Many trading companies are both asking and forcing their clients to get out of the front month June contract for fear that it will trade negative again. The USO oil fund that has gotten a lot of attention lately has been instructed by the CME to get out of June contract and is also limiting their exposure to July as well. The June WTI future contract may be a very sparse space in the near future as many traders are getting out and moving their positions into more forward months. There are also some concerns that the front month May products contracts, RBOB and ULSD, expiration could be volatile also as this is the first settlement for these contract since WTI traded negative for the first time ever.
WTI crude oil fell by almost 25% in Monday’s trading for the June futures contract. The refined fuels products and Brent crude oil price also fell by 2.5% to as much as 6.8%. The fall in prices is attributed mainly to the world storage for crude oil at approximately 85% capacity and an exchanged traded oil funds selling a major number of WTI oil futures contracts.
Here is another fund that is moving out of June contracts early. The largest oil fund (S&P DOW Commodity Index) announced late yesterday that it was going to roll its entire position from June 2020 to July 2020 WTI crude oil futures today. This is normally a 5 day roll that they are pushing into a one day flush. Interesting times as the coronavirus continue to have unprecedented impact on many things.
The production shut-ins continue, and the Permian Basin and New Mexico have seen a large percentage of the declines, as these areas account for 62% of the shutdowns. This is “an ominous sign considering this region has been one of the more prosperous in the US.”, ANZ analysts said.
The AAA reported that the US national average price of gasoline is $1.77 per gallon as on Monday, down 4 cents from last week, down 28 cents form last month and $1.11 per gallon less than a year ago. It forecast that the national average will continue to decline into next month, possibly falling as low as $1.65 per gallon.
OPEC+ is not expected to implement their 9.7 million bpd oil output cuts until May 1st. The global output cuts are expected to equate to 19.5 million bpd which is about 10% of world supplies. However, the coronavirus pandemic is pushing demand down by an estimates 20-30% worldwide.