West Texas Crude, 4 cents a barrel and falling.

Have you ever seen oil at 4 cents per barrel? I haven’t. And even though it’s a future’s contract, I don’t believe this has ever happened before.

Here you go. A May delivery West Texas Crude contract collapse of 101%, so far.

may delivery.gif

Sure, the contract ends shortly, however it probably confirms that storage capacity is at an end for the moment, and that producers may have to pay buyers to take production off their hands - effectively, chucking it out. This is also the reason it will probably go below 0 cents per barrel.

But it’s 2.30am over here and I’m calling it a night, or should I say a day?

But before I go, we all know the causes:

  • Over supply by the U.S.

  • Oversupply by Russia/OPEC despite recent capitulation.

  • Absent demand courtesy of COVID-19.

June delivery is down a less dramatic 12%.

june oil.gif

Prices bounce around, go sideways, pop, crash and recover, however at this point the COVID-19 catalyst looks seismic, and May is all but upon us.

What’s the equity market saying?

At present, Exxon’s off less than 3% and Chevron’s down 2%. Hmm….

Equity bulls will say it’s just a glitch for May and that the thematic is already factored in, and ‘look beyond 2020’, blah, blah, blah….

But what’s really going on?

Simple. The economy is grinding to a halt and the Fed has issued an open ended guarantee, so it is now the lender and investor of last resort. QE Infinity plus Guarantee Infinity means almost all risk has transferred to the Fed. If there’s no market for it, sell it to the Fed.

What the real economy will look like after COVID-19 has finished with us is going to be very different to what any puffed up, helium filled secondary asset market looks like.

Stay tuned (or, close your eyes if you can’t watch).

Mike.

NextLevelCorporate is a leading financial & strategic corporate advisory firm with a multi-decade track record that speaks for itself. Helping clients in all industries to prepare for, respond to and deliver transformative corporate finance strategies and transactions in and out of Australia, is our passion.

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