Oil, Gas, And Fracking News Reads: 26April 2020 – Part 2

Written by rjs, MarketWatch 666

Here are some more selected news articles about the oil and gas industry from the week ended 25 April 2020. Go here for Part 1.

This is a feature at Global Economic Intersection every Monday evening.

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Oil plunges to just one cent a barrel – 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. West Texas Intermediate crude for May delivery sank to just one cent per barrel, its lowest level on record. 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. The spread between the May and June contracts – known as the front month and second month – is now the widest in history, according to KKM Financial’s Jeff Kilburg. Earlier this month, analysts at Goldman Sachs warned that the coronavirus shock was “extremely negative for oil prices and is sending landlocked crude prices into negative territory.” “The U.S. situation is quite dire,” The coronavirus pandemic has dealt a severe blow to economic activity around the globe and sapped demand for oil. While OPEC and its oil-producing allies finalized a historic agreement earlier this month to cut production by 9.7 million barrels per day beginning May 1, many argue that it still won’t be enough to counter the fall-off in demand. The International Energy Agency, for instance, warned in its closely watched monthly report, that demand in April could be 29 million barrels per day lower than a year ago, hitting a level last seen in 1995. The COVID-19 outbreak has meant countries have effectively had to shut down, with many governments imposing restrictive measures on the daily lives of billions of people. It has created an unprecedented demand shock in energy markets, with storage space – both onshore and offshore – quickly filling up. With demand at near-paralysis, oil and fuel tanks around the world are close to brimming. “Going forward, we are going to have to see a lot of declines in production in the U.S. in order to push this thing a little bit higher,” Samir Madani, founder of TankerTrackers.com, told CNBC on Monday. “U.S. energy is very important for global energy security … because if it wasn’t for U.S. energy then prices would be a whole lot higher,” Madani said.

Oil prices dip below zero as producers forced to pay to dispose of excess – US oil prices turned negative for the first time on record on Monday as North America’s oil producers run out of space to store an unprecedented oversupply of crude left by the coronavirus crisis.The price of US crude oil collapsed from $18 a barrel to -$38 in a matter of hours, forcing oil producers to pay buyers to take the glut of crude which they cannot store, as rising stockpiles of crude threaten to overwhelm oil storage facilities. “The problem of the global supply-demand imbalance has started to really manifest itself in prices,” said Bjornar Tonhaugen, head of oil at research firm Rystad Energy. “As production continues relatively unscathed, storages are filling up by the day. The world is using less and less oil and producers now feel how this translates.” The Guardian reported over the weekend that a record 160m barrels of oil was being stored in “supergiant” oil tankers outside the world’s largest shipping ports, including the US Gulf, following the deepest fall in oil demand in 25 years because of the coronavirus pandemic. The last time floating storage reached levels close to this was in the depths of the financial crisis in 2009, when traders stored more than 100m barrels at sea before offloading stocks when the economy began to recover. The price collapse in US oil market – known in the industry as the West Texas Intermediate price – accelerated because it is the last day oil producers can trade barrels that are scheduled for delivery next month, when oil storage is expected to reach capacity. The US price for oil delivered in June, which will become the default oil price from tomorrow, is also falling due to the economic gloom caused by the coronavirus, but has managed to remain above $20 a barrel. On Monday the price for brent crude, the most widely used benchmark, fell 8% to $25.79. Global oil prices are expected to begin recovering over the second half of the year as tight restrictions on travel to help curb the spread of the virus are lifted, raising demand for fuels and oil. The world’s largest oil-producing nations have agreed a deal to hold back between 10m to 20m barrels of oil a day from the global market from May, and many oil companies are likely to shut their wells as financial pressures mount. Despite the historic production cuts, most analysts believe that oil prices will fail to reach the same price levels recorded at the beginning of the year before the outbreak. The global oil price, under the brent crude measure, reached highs of almost $69 a barrel in January before plummeting to less than $23 a barrel at the end of March.

An oil futures contract expiring Tuesday went negative in bizarre move showing a demand collapse – A futures contract for U.S. crude prices dropped more than 100% and turned negative for the first time in history on Monday, showing just how much demand has collapsed due to the coronavirus pandemic. But traders cautioned that this collapse into negative territory was not reflective of the true reality in the beaten-up oil market.. The price of the nearest oil futures contract, which expires Tuesday, detached from later month futures contracts, which continued to trade above $20 per barrel. West Texas Intermediate crude for May delivery fell more than 100% to settle at negative $37.63 per barrel, meaning producers would pay traders to take the oil off their hands. This negative price has never happened before for an oil futures contract. Futures contracts trade by the month. The June WTI contract, which expires on May 19, fell about 18% to settle at $20.43 per barrel. This contract, which was more actively traded, is a better reflection of the reality in the oil market. The July contract was roughly 11% lower at $26.18 per barrel. The international benchmark, Brent crude, which has already rolled to the June contract, settled 8.9% lower at $25.57 per barrel. 20200420 Oil futures crash 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. The only buyers of oil futures for that contract are entities that want to physically take the delivery like a refinery or an airline. But demand has dropped and storage tanks are filled, so they don’t need it. “There is still a lot of crude on the water right now that is going to refineries that do not need it,” Helima Croft, global head of commodities strategy at RBC Capital, said Monday on CNBC’s “Squawk Box”. “Right now we don’t see any near-term relief for this oil market … we remain really concerned for the outlook on oil near-term,” she added.

Anyone who thinks oil has hit a floor is ‘playing with fire’ – yes, prices can go lower – An oil futures contract in the U.S. made a historic plunge, with West Texas Intermediate crude for May delivery falling below zero for the first time to settle at negative $37.63 per barrel. Monday’s crash shows a stark picture of how demand has been obliterated by the coronavirus pandemic while storage tanks in the U.S. have run out of space – companies are actually paying traders to take the oil off their hands. Eyes are now on the more actively traded June contract for U.S. crude as market players question whether there is a buying opportunity in the coming weeks or whether the commodity has even further to fall. “As the smoke clears, that’s the number one question of the markets today – anyone who thinks that the technicals are behind the pricing yesterday is going to completely miss the point,” Dave Ernsberger, global head of commodities pricing for S&P Global Platts, told CNBC’s “Squawk Box Europe” on Tuesday. “That storage is just as full for June, if not fuller, than it was for May. Already Cushing is 70% or 80% full, and that technically means it’s closed for business. So we could easily see this play into the June contract pretty soon.” Cushing, Oklahoma, is a critical oil storage hub and delivery point for American oil traded on futures markets. WTI is already down a staggering 102% year to date, and Brent is down 65%. The U.S. energy sector is more than 50% below its 52-week closing high. The June contract for WTI was trading at $14.40 by Tuesday afternoon London time, already down 30% from the previous day and fluctuating continuously. The negative May contract – which later turned positive to surpass $2 but fell back to less than negative $3 during London’s morning trading hours – was hit harder as it expires on Tuesday, meaning it’s seeing less trading activity as it’s set for delivery while economies around the world remain in full lockdown mode. The spread between May and June contracts was the largest in history. Still, trying to make money buying into oil businesses on the hopes of improved prices in June is a complete gamble, Ernsberger warned. “There’s an eight-week danger zone here between today and sometime in June – where between now and then, anybody who thinks oil has found a floor is playing with fire and trying to catch the famous falling knife, because it’s almost impossible to call,” he said.

Oil price contracts take historic plunge into negative territory – In a day of chaos in the international oil market yesterday, futures contracts expiring today on US-produced West Texas Intermediate crude dropped to as low as -$40.32 per barrel, meaning that producers were paying buyers to take them off their hands. The price at the close of trading was -$37.63 compared with $18.36 a barrel on Friday. It is the first time in history that oil prices have gone into negative territory. The reason for the collapse is the lack of storage capacity in the US because of the collapse in demand due to the impact of the COVID-19 pandemic and the associated lockdown measures. The main US storage facility is at Cushing, Oklahoma, a town of 10,000 people. The storage hub was at 70 percent capacity last week with traders saying it would be filled within two weeks. This prompted the futures selloff because the holder has to deliver 1000 barrels for every contract they hold to Cushing. Traders in the futures market described the chaos. Phil Flynn, senior market analyst at Price Futures Group, told the New York Times: “We saw a total collapse in the market. There was everybody selling it into the hole with no buyers. They’re going to have to drive down to a price where someone wants to buy it, and no one wants to buy it.” The director of energy futures at Mizuho in New York told the Times: “I’m 55 years old, and I worked on the trading floor in college. I’ve been through the first Gulf War, second Gulf War, World Trade Center, dot-com crisis, and nothing came close to this. It could get worse. This situation we are in is that bad.” Some futures traders are still betting on a revival and so contracts for June remain positive. But an even bigger crash could be in the making when they become due.

Holy WTF Moly: WTI May Contract Collapses to Negative -$37 – Wolf Richter – It’s not often that we’re served up a WTF moment like this. Just about a couple of hours ago, I published my article about US crude-oil benchmark grade West Texas Intermediate (WTI) and how the May futures contract for it collapsed by 45% to $10 a barrel – US Crude Oil Gets Annihilated Under Targeted Saudi Attack – and I pointed at some of the dynamics. But WTI kept plunging.This is the near-month May futures contract, which expires tomorrow. It should normally trade close to the spot market price, but has now divorced from it. It has continued to collapse in a breath-taking pace to $8 a barrel, then $4, then $2, then $0, then below zero, then at -$10 and then… and now settled at negative -$37.63 a barrel:This is obviously completely nuts. Futures contracts that expire the next day should be close to the spot market cash price.But the WTI spot cash price “only” collapsed by 35% today to $11.70 at the moment. And in terms of prices further out, the June futures contract has plunged by 17% to $20.75. So this is a WTI massacre all around, but those prices are still well into positive territory.So the disconnect between the May contract (-$37.63), and the cash spot price ($11.80), and the June contract ($21.77) point at some serious forced selling and a complete blowup in the May contracts.It seems some oil trading firms and hedge funds were caught on the wrong side of heavily leveraged bets, and couldn’t roll over their contracts due to a liquidity crunch and horrible market conditions in that space. But if they can’t sell the contracts by tomorrow, they’ll have to take delivery of the physical oil at the delivery point for NYMEX futures, namely in Cushing, Oklahoma.The delivery time is in May. But storage in Cushing for May seems to have been spoken for, and now these traders see that they have no place to go with this oil that they might have to take delivery of in May.But the market for the May contract today essentially collapsed, as potential buyers faced the same problem. And so in their desperate efforts to get rid of the contracts so they wouldn’t end up with the oil that they couldn’t physically handle, these speculators paid a heavy price. Over the next couple of days, we’ll probably learn who some of those exploded-imploded players might have been. Meanwhile this is a moment for historic reflection and head-shaking.

Oil traders have never seen ‘insane’ market like this before, fear more declines to negative prices – The oil market is facing uncharted territory as the drop-off in demand, caused by the coronavirus pandemic, combined with rapidly filling storage, sent prices plunging into negative territory for the first time in history. And with only guesswork as to when stay-at-home orders might be lifted and when crude demand might pick up, traders warn that oil could continue to trade at extremely depressed levels. “If we have not recovered from Covid in July so that enough driving has come back and storage is full, then the price of crude oil is going to be zero,” RBN Energy’s Rusty Braziel told CNBC. He called Monday’s trading activity “insane,” and said that in his more than 40 years of trading he had “never seen anything like this.” West Texas Intermediate crude for May delivery fell Monday more than 100% to settle at negative $37.63 per barrel, meaning sellers would effectively pay to have the oil taken off their hands. The contract expires on Tuesday, fueling the wild swing to the downside as traders scrambled to get out of their positions. Longer-term contracts settled above $20 per barrel on Monday, but losses accelerated in overnight trading, suggesting that traders are increasingly concerned about a lack storage will continue in coming months. The contract for June delivery – the most actively traded WTI contract – fell 18.7% to trade at $16.61 per barrel on Tuesday. The July contract was about 10% lower at $23.66 per barrel. Bernadette Johnson, Enverus’ vice president of strategic analytics, noted that the June contract will likely face pressure until demand comes back, and she believes it will “start coming down over the next month.” Some of this view is already reflected with bets in the options market. Scott Nations, president and chief investment officer at NationsShares, noted that June 0.50 puts are currently trading for more than 50 cents, meaning that traders would only turn a profit if the June WTI contract expires in negative territory when accounting for the option premium. In the meantime, Johnson said a lack of storage will force oil companies to halt production. “What we’re into now is shut-in economics,” she told CNBC in an email. “Product demand is off and when product demand is off, you don’t buy crude. If you don’t buy crude, you can’t produce the crude if there’s not a place to store it, and so that’s the problem.”

‘Uncharted territory.’ Oil prices go negative for 1st time — Tuesday, April 21, 2020 — Oil prices took a spectacular tumble yesterday with the benchmark U.S. grade falling into negative territory for the first time on fears the world will run out of storage during the novel coronavirus pandemic. West Texas Intermediate crude, which sold for more than $60 a barrel at the beginning of the year, started the day at just under $18 a barrel and fell 300% to a low of around negative $37 per barrel. The plunge came amid an unprecedented drop in worldwide oil consumption due to widespread travel restrictions and business shutdowns aimed at curbing the spread of COVID-19. The negative price – which roiled markets a week after the Trump administration and the world’s crude-producing countries negotiated a highly publicized deal to stabilize them – was likely a quirk of the oil market structure and will be short-lived, analysts said. But it shows that the pandemic’s economic effects will continue to hammer oil prices for months, if not longer. “We ought to be a little bit humbled because we’re living in completely uncharted territory here,” said Mark Finley, a fellow in energy and global oil at Rice University’s Baker Institute. The free-falling price is another historic event, coming on the heels of the record-setting drop in oil demand that the virus caused and the international deal by oil-producing countries to slash production, Finley said. Oil typically trades on one-month contracts, and the negative prices only affect oil scheduled for delivery in May. The price for West Texas Intermediate delivered in June is still about $22 a barrel. The sharp drop shows the larger problem with the oil market, according to the data firm Rystad Energy. Demand for crude has fallen by more than one-fourth since the outbreak started, yet production has continued at a breakneck pace because of a price war among Saudi Arabia, Russia and other oil-pumping nations. It was only a matter of time before the supply of oil outstripped the demand from refineries and the capacity of storage facilities to hold it. “And what does that mean? That pricey shut-ins or even bankruptcies could now be cheaper for some operators,” the firm’s oil market analyst, Louise Dickson, said in a research note.

Why U.S. oil prices fell below zero. – In the latest sign that the world economy is collapsing into a black hole, the price of oil dropped below zero for the first time ever Monday, with futures for U.S. crude delivered in May wrapping up at negative $37.63 per barrel. In practical terms, this means that anybody who is supposed to receive a shipment of American crude but doesn’t want it will have to pay somebody else to take it. How come? Because we are literally running out of places to put all of the extra oil we’re not using, because people have stopped driving, flying, or living any semblance of normal life while the country descends into a state of coronavirus-induced catatonia. As the Wall Street Journal puts it: “The historic low price reflects uncertainty about what buyers would even do with a barrel of crude in the near term. Refineries, storage facilities, pipelines and even ocean tankers have filled up rapidly since billions of people around the world began sheltering in place to slow the spread of the deadly coronavirus.” This is happening despite the deal Donald Trump helped broker between Russia and Saudi Arabia to cut production and stabilize prices. Good try, good effort, I guess. Buyers are still willing to pay positive sums of money for crude delivered later in the year. Contracts for June closed the day above $20 a barrel, which suggests that traders expect the current glut to ease up a bit, either due to further production cuts or because they think the economy will have recovered ever so slightly by then. They just really don’t want to be responsible for dealing with a bunch of hydrocarbons right now. This state of affairs – when a commodity’s price is higher in the future than the present – is known as contango, by the way, and while that little bit of vocab is in no way essential to understanding what’s going on, it is possibly my favorite bit of financial marketese. It’s like a tango, but contagious. The storage problem also appears to be worst in the United States. CNN notes that investors are especially worried that storage is reaching capacity in Cushing, Oklahoma, the domestic industry’s key transit hub. Brent crude, the international benchmark variety that mostly gets shipped out on tankers, is still trading at $25.70, presumably because it has a wider market and there are just more places to stow the stuff.

‘This is a great time to buy oil,’ Trump says as prices plunge into negative territory — After a tumultuous day that saw oil futures falling into negative territory, President Donald Trump suggested the U.S. could either purchase roughly 75 million barrels of oil to add to the country’s Strategic Petroleum Reserve, or rent that spare capacity to oil companies squeezed for storage space due to the glut in the market. “This is a great time to buy oil. We’d get it for the right price,” Trump said at a coronavirus task force news briefing on Monday night. “Nobody’s ever heard of negative oil before.” Lawmakers have discussed providing support to the struggling energy sector, but a plan for the Department of Energy to spend $3 billion purchasing oil for the Strategic Petroleum Reserve was suspended when the money was not included in the stimulus package passed earlier this month.The price for West Texas Intermediate crude contracted for May delivery plunged Monday to negative $37.63 a barrel for contracts expiring Tuesday. In an ordinary market, buyers with such a short horizon would typically be businesses such as airlines or refineries taking delivery of oil right away. But as the COVID-19 pandemic has ravaged economies around the world, would-be buyers literally have no place to warehouse oil, which is amassing in storage facilities, on board tankers and in pipelines around the world. Although the coalition of oil-producing countries referred to colloquially as OPEC+ agreed to shave nearly 10 million barrels a day off their collective output, this cut pales in comparison to the speed with which our collective appetite for oil is evaporating. In today’s moribund market, global demand for oil has plummeted by 25 to 30 million barrels a day, said Tom Kloza, global head of energy analysis for Oil Price Information Service, an IHS Markit company. “Right now we’re at peak demand destruction.” Oil is piling up faster than refiners, airlines, shipping companies and drivers can use it, since no one in the world needs it immediately – an unlikely and unprecedented confluence of circumstances that has distorted the market to such extremes that a seller would, in theory, have to pay a buyer to take oil off their hands.

As crude oil drops to historic lows, chart analyst sees 90-year record for energy stocks – West Texas Intermediate crude for May delivery, a contract expiring Tuesday, fell more than 300% to negative $37.63. It was the first time that crude oil had fallen below zero. Oil has been crushed by Covid-19 disruptions and a price war between Saudi Arabia and Russia. Energy stocks were also hit hard on Monday with the XLE energy ETF falling by 3%. Ari Wald, head of technical analysis at Oppenheimer, says while the drop wasn’t as steep for energy stocks, the group did reach its own historic low. “The sector overall [is] really far from bullish. In fact, the energy sector [is] coming off its lowest level since 1931 versus the S&P. That’s a 90-year relative low. So while some stabilization will be both reasonable and welcome, we see more attractive opportunities for funds elsewhere and stay away,” Wald said on CNBC’s “Trading Nation” on Monday. Wald says it makes sense to either avoid the energy sector or sell on any strength. One group of investors could see opportunity here, though, says Boris Schlossberg, managing director of FX strategy at BK Asset Management. “If you’re a value investor, this is actually the kind of scenario you actually want. Energy was 70% of the S&P at the height when oil was around $100 a barrel. Now it’s only 3% of the S&P. It’s a perfect mean reversion trade,” Schlossberg said during the same segment. Value investors face stocks that trade at a “cheap” valuation relative to the market – this is commonly measured by their price-to-earnings ratios. “Overall, on a long-term basis, I think the easiest play is to simply buy the biggest players in the space – perhaps Exxon and Royal Dutch Shell – because they have the strongest balance sheet, because ultimately what’s going to happen is you’re going to have massive consolidation, they’re going to be able to buy assets incredibly cheap,” said Schlossberg. Exxon Mobil and Royal Dutch Shell are down 41% and 43% year to date, respectively. The XLE ETF is down 45% year to date.

US Oil Fund, popular ETF trading under ticker ‘USO,’ plunges 38%, halted for trading repeatedly – The United States Oil Fund, a popular exchange-traded security known for its ‘USO’ ticker which is supposed to track the price of oil and is popular with retail investors, plunged nearly 40%. The fund said Tuesday afternoon that it would be changing its structure yet again. This time the fund is requesting to invest in varying oil futures contracts and said it had already moved money into the August crude oil contract. The fund was halted, down 36% to $2.40. IT was repeatedly halted for volatility on Tuesday after USCF, the manager of the fund, said that it was temporarily suspending the issuance of so-called creation baskets. Creation baskets are how an ETF creates new shares to meet demand. The baskets hold the underlying securities which in this case are plummeting oil futures. With the halting of these creation baskets, the ETF will essentially now trade with a fixed number of shares like a closed-end mutual fund. On Friday, USCF changed the structure of the USO fund so that it can hold longer-dated contracts. Per a regulatory filing, around 80% of the fund will be in the front-month contract, with 20% in the second-month contract. That changed again with a new filing Tuesday afternoon. The filing stated: “Commencing on April 22, 2020, USO in response to ongoing extraordinary market conditions in the crude oil markets, including super contango, may invest in the above described crude oil futures contracts on the NYMEX and ICE Futures in any month available or in varying percentages or invest in any other of the permitted investments described below and in its prospectus, without further disclosure. USO intends to attempt to continue tracking USO’s benchmark as closely as possible, however significant tracking deviations may occur above and beyond the differences described herein.”

What plunging crude prices mean for the market’s largest oil ETF – It’s been a wild week for the oil market. Oil prices began an unprecedented drop on Monday that saw the West Texas Intermediate May futures contract, which expires on Tuesday, slide into negative territory for the first time ever. The May and June contracts remained under serious pressure Tuesday as the more actively traded June contract fell nearly 25%. In the days leading up to the historic plunge, the United States Oil Fund (USO) – the market’s largest crude oil ETF by assets – saw notably higher trading volumes as short- and long-term buyers sought to express their views on crude, ETF analysts told CNBC on Monday. Some market watchers criticized USO for playing a role in the implosion in oil prices given its sizable, roughly 25% position in the May futures contracts. But Mike Akins, founding partner of ETF Action, told CNBC’s “ETF Edge” on Monday that likely wasn’t the case. “It’s important to note that USO is no longer in the May contract. USO’s methodology is to roll out of their contracts two weeks prior to expiration, so, actually, they rolled out of May into June the week of April 7,” Akins said. “So, with respect to what’s going on currently with … that huge disconnect between the price of May contracts and June contracts, it is not directly related to USO even though USO … does own a significant percentage of contracts of the month they’re currently holding.” Akins was more concerned about how buyers might interpret the spike in USO’s trading volumes. The increase was evidenced by higher share creation in the fund, which is when an ETF issues new blocks of shares to sell on the open market. “I think it’s important to point out to the audience that, historically … the price of USO has been an inverse relationship to the shares outstanding. That meaning that as price goes down, shares outstanding have historically gone up and vice versa. And the rationale for that is because [of] the demand,” Akins said. “As volatility increases in the price of oil, the demand for this product goes up,” he said. “But it’s very important not to use that as a way to assume that people are getting long the price of oil, because these strategies, these are trading tools. They’re not allocation tools alone. And as a result, as you mentioned, flows don’t dictate the position of the actual traders.”

What an Oil ETF Has to Do With Plunging Oil Prices — The oil market is in disarray, a result of a coronavirus-led collapse in demand, surplus supply following a price war and a shortage of storage. Yet there have been plenty of people willing to bet on a rebound in basement-level crude prices, and for many retail investors the vehicle of choice has been an exchange-traded fund. However, those wagers via the biggest American ETF – – the U.S. Oil Fund, or USO – – have contributed to market mayhem and helped push crude prices below zero. It grew so huge so quickly that it became a sizable player in the market for West Texas Intermediate, the U.S. benchmark for crude. Investors piled in during March and April, convinced that oil prices that had been falling — pushed down by a price war between Saudi Arabia and Russia that boosted production just as demand was slashed by pandemic-driven lockdowns — would eventually recover once economies reopened. At different stages, the fund held about a quarter of all May and June contracts for WTI. Unlike shares that can be held as long as an investor chooses, oil futures have finite terms and are agreements to buy or sell a physical product. The May futures contract, for example, expired on April 21. Any holder who had not sold by then would need to take delivery of the oil — 1,000 U.S. barrels, or 42,000 gallons, for each contract. As a favored investment vehicle for many bullish speculators, the number of shares in the fund ballooned from 145 million at the end of February to more than 1.4 billion by mid-April. Its outsized portion of the WTI market – – on paper — came at a time when demand for physical oil was cratering and storage space was becoming harder and more expensive to find. For years, USO was mandated to invest in the most-active WTI contract and to roll it over to the following contract. (Rolling over means selling it and, often simultaneously, buying the following month’s contract.) The flood of money into May contracts earlier had pushed oil prices up; as USO sold its May futures as part of the rollover and bought June and July contracts, prices fell for May and rose for the following months, opening an unusually wide spread. Only a handful of traders remained in the May contract on Monday, when prices plunged well below zero. With USO holding a significant level of June contracts, there are concerns that prices will go negative again and that the whole process might repeat — or might be worse, if the April 20th debacle scares off more investors. To try to mitigate the prospect, USO, which lost 37% of its value in the first three weeks of April, has moved to allocate some holdings to contracts expiring later in the year, since those prices tend to be less volatile. But the fund is adding to pressure on oil prices in other ways.

Retail investors who believed they were investing in crude oil get a rude awakening – “Know what you own” is an old adage when investing, but it is especially important when owning investments that hold futures contracts. Just look at the largest oil ETF, the United States Oil Fund (USO). Many retail investors mistakenly believe this is a proxy for investing in the “spot” (cash) price for oil. But it isn’t, and never has been. The purpose of the fund was to track as closely as possible the front-month oil futures contract, not the spot price. True, the prices for spot oil and USO have been reasonably close – until the oil market imploded. In theory, USO works in a very simple manner. Every month, about two weeks before that “front month” contract expired, USO and similar funds began buying the next futures contract. Sounds like a good way to bet on oil, right? Except it isn’t – because it owns futures contracts, not the spot price of oil. Most futures markets are in “contango” – the price of contracts farther out in time are more expensive than the earlier or “front-month” contracts due to the cost of storing the commodity. That is certainly true of oil. So every month USO and other similarly structured ETFs have to close out their futures positions by buying the next month’s contract, and since it is almost always a higher price an investor over time – many months – will lose money. As the short-term demand for oil has collapsed, the front-month contracts have collapsed, and the “spread” between the front-month contracts and those farther out have gotten huge: the June contract is at $13, the July is at $23. That means that investors – like USO – that will eventually roll over from the June to the July contract are having to pay a huge premium. Investors, in these circumstances, are guaranteed to lose money. A lot of it, especially if it is repeated for several months. What’s the bottom line? These kinds of vehicles are primarily meant to be used by active traders to hedge or short positions. They are not meant as long-term buy and hold vehicles.

Mom and Pop Piled Into Biggest U.S. Oil ETF During Historic Rout — The historic rout in oil this week has done little to deter mom and pop investors who are convinced they can see a bottom for the beleaguered commodity. The number of investors at retail trading platform Robinhood piling into the biggest oil ETF, the United States Oil Fund LP (USO), spiked to 152,073 at the end of Tuesday, according to Robintrack, a website unaffiliated with the site that uses its data to show trends in positioning. That figure was up more than 50,000 from Monday and 90,000 from the end of last week, making it the most-added security across the trading venue. The demand for the oil ETF came as the price of crude tumbled to historic levels, with retail investors speculating in some instances that oil at $1 a barrel had nowhere to go but higher. But USO isn’t a direct bet on oil prices, and incurs costs from rolling its futures positions that hamper performance when longer-dated contracts cost more than the current one. “There’s a huge cost of carry in the front of the curve and the average Robinhood USO buyer and USO call buyer doesn’t know that, doesn’t understand that, or doesn’t care, and thinks they’re just buying oil at a low price,” said Benn Eifert, chief investment officer at QVR Advisors. relates to Mom and Pop Piled Into Biggest U.S. Oil ETF During Historic Rout USO fell 10% to $2.52 as of 12:54 p.m. in New York, headed for a ninth straight day of losses. It’s down 37% so far in April. With the price so low, the fund announced a one-for-eight reverse share split on Wednesday, a move it said is designed to ensure the shares trade above levels exchanges require for continued listings. It also said the move is “expected to increase the marketability and liquidity” of the shares. Some ETF experts believe the split may be designed to attract more interest from retail investors. “That’s what these things do, as they don’t want it trading less than $1,” Christian Fromhertz, chief executive officer of Tribeca Trade Group in New York. “It’s just making it a higher stock price to suck in more retail.” An email to a Robinhood spokesman was not immediately answered. Todd Rosenbluth, director of ETF and mutual fund research at CFRA Research, said the split, which will increase the price eight-fold, aims to make the ETF more palatable. “Reverse splits are designed to make potential investors believe the security has greater value than before as it is harder to consider buying a low single digit priced fund,” he said. Most of the recent USO buyers now own a product that’s much different than it was a week ago. The ETF used to maintain a position in only the front-month West Texas Intermediate contract, but announced on April 16 a shift to having 20% of its exposures in the second-month. Since then, the fund said it could hold West Texas Intermediate futures at any point in the curve, and now holds 40% in the front month contract, 55% in the second month, and 5% in the third. These tweaks help guard against the possibility that the cumulative value of its holdings could turn negative.

Bank of China sold oil’s May contract into a historic implosion in crude – and retail investors may have gotten crushed – Chinese banks hawked wealth-management products tracking U.S. oil futures, marketed with flashy labels like “crude oil treasure” to ordinary Chinese. Buyers are now crying foul over the losses as some investors report they now owed money to banks when crude briefly fell below $0 on Monday. Local news reports say these oil-related funds were slammed by the strained liquidity in energy trading this week as banks offering these products needed to sell their soon-to-expire futures for the most recent contract and buy the following month’s futures to maintain exposure to oil markets. But the combination of an oil surplus and winnowing demand saw prices for U.S. benchmark crude futures trade in subzero territory for the first time in history as traders and other speculative investors attempted to avoid taking delivery of physical oil shipments. See: Why oil prices just crashed into negative territory – 4 things investors need to know Bank of China 3988, -0.34% was rolling over West Texas Intermediate U.S. futures for May delivery on Monday, only a day before they were set to expire, unlike other Chinese banks who rolled over their oil futures at earlier dates, reported Caixin, citing traders familiar with the matter. It’s unclear how many May contracts they needed to sell on Monday. The date of the rollover had been pre-arranged, said Caixin, citing sources at the Bank of China. Faced with a glut of oil swirling around the world, Bank of China sold the May contract into a maelstrom of selling, with the now-defunct contract eventually settling at negative-$37.63 a barrel on Monday. Trading was suspended for these Chinese oil funds the following day, the bank said.

Oil for Less Than Nothing? Here’s How That Happened — April 20, 2020 will go down in oil-market history as the day when the U.S. benchmark price for crude dropped below zero for the first time — and then kept falling. In a massive and unprecedented swing, the future contracts for May delivery of West Texas Intermediate tumbled to minus $37.63 a barrel. The jaw-dropping development was in no small measure down to an extreme glitch in the way oil futures operate. But it also revealed a fundamental truth about the oil market in the age of coronavirus and the aftermath of a price war: The world’s most important commodity is quickly losing all value as chronic oversupply overwhelms the world’s crude tanks, pipelines and supertankers. Why would anyone pay to sell their oil? For some producers, it may be cheaper in the long run than closing down production or finding a place to store the supply bubbling out of the ground. Many worry that shutting their wells might damage them permanently, rendering them uneconomical in the future. Then there are the traders who buy oil futures contracts as a way of betting on price movements who have no intention of taking delivery of barrels. They can get caught by sharp price drops and face the choice of finding storage or selling at a loss. And the escalating glut of oil has made storage space scarce, and increasingly expensive. Either the pandemic or the price war alone would have rocked energy markets. Together, they have turned them upside down. As the virus started to spread around the globe, it began eating away at oil demand. But just as countries like Italy showed what kind of damage a national lockdown could do economically, Saudi Arabia and Russia, the world’s biggest oil producers, escalated the price war. A pact that had restrained production collapsed and both countries opened their taps to the fullest, releasing record volumes of crude into the market. Wasn’t there a deal on that? Yes, one worked out by OPEC, Russia, the U.S. and the Group of 20 countries. But its call for an overall production cut of roughly 10% proved to be too little, too late. Prices initially turned negative just in obscure corners of the U.S. market such as Wyoming, where storage options are few. Then major hubs began to register negative prices for small streams of selected crudes. And on April 20, prices fell sharply below zero on the NYMEX exchange, which is owned by CME, the world’s largest energy market. The lowest prices came in trades in futures — contracts in which a buyer locks in a purchase at a stated price at a stated time. Futures are a tool for users of oil to hedge against price swings, but also a means of speculation. The contracts run for a set period, and traders who don’t want to unwind their position or take delivery generally roll over their monthly contracts shortly before expiration to a month further in the future. Contracts for May delivery were due to expire on April 21, putting maximum pressure the day before on traders whose contracts were coming due. For them, selling at a steeply negative price was better than taking delivery of actual oil because nobody needs it and there are fewer and fewer places to put it.

Negative oil prices – James Hamilton – First negative interest rates, and now negative oil prices. Is the world coming to an end? The price of the May crude-oil futures contract closed yesterday at negative $37.63 a barrel. The buyer of that contract is entitled to receive 1000 barrels of oil in Cushing, Oklahoma in May and in addition the buyer is entitled to receive $37,630. Sound like a pretty good deal? A month ago there were around a half million such contracts outstanding, promising delivery of half a billion barrels of oil to Cushing in May. That’s far more than could ever be physically delivered, and it’s perfectly normal. In the vast majority of those contracts, the buyer had no intention of receiving oil and the seller had no intention of delivering oil. The plan of the buyer was to sell the contract to somebody else before time for delivery, and enjoy the gain if they sell for more than they bought. The seller likewise planned later to buy a contract; in effect, their original offer was a short sale, which they later cover by buying. You can think of the second contract that closes each individual’s initial position as between the same two parties as the original contract, so that the two trades exactly cancel. For most of the original contracts, no oil actually changes hands in May. The anchor for the system is the fact that the buyer has the right to receive physical delivery if they choose to hold the contract to expiry, and could plan to put the oil into storage or ship it immediately into another pipeline. If I can store the oil in Cushing for a cost of a few dollars a barrel, that’s a valid option. But the higher the cost of storage, the bigger problem I’ll have on my hands if I actually take physical delivery. The May contract expires today, so if you haven’t sold your position now, you better plan on receiving your 1000 barrels of oil. But you can still buy oil for delivery in June, or for delivery in July, or other future months. There is a basic arbitrage that connects the futures prices in any consecutive months. By buying the July contract you could lock in an option to receive delivery in July at a cost of $26.28 per barrel. You could plan on storing the oil that month and selling in August at a guaranteed price of $28.51. If you expect the cost of storing oil in July to be $2.23 per barrel (28.51 – 26.28 = 2.23), you’ll just break even by buying the July contract and selling the August contract. If you think the price you’d have to pay to store the oil in July would be less than $2.23, you should buy July oil and sell August oil. Arbitrageurs following that trade will drive the July price up and August price down. In equilibrium we’d expect the price differential between months to represent the cost of storage. Applying that interpretation to the above numbers, the cost of storing a barrel right now is imputed to be around $60 a barrel (nobody would do the deal with you yesterday at any reasonable price). The imputed storage cost is about $6 in June. There’s a horrific storage bottleneck in Cushing right now, but traders are betting that it’s going to be more manageable by summer.

Here Is The Full Explanation Behind Today’s Unprecedented Negative Oil Price – How did you end up with negative oil prices today? This happens when a physical futures contract find no buyers close to or at expiry. Let me explain what that means: A physical contract such as the NYMEX WTI has a delivery point at Cushing, OK, & date, in this occurrence May. So people who hold the contract at the end of the trading window have to take physical delivery of the oil they bought on the futures market. This is very rare. It means that in the last few days of the futures trading cycle, (which is tomorrow for this one) speculative or paper futures positions start rolling over to the next contract. This is normally a pretty undramatic affair. What is happening today is trades or speculators who had bought the contract are finding themselves unable to resell it, and have no storage booked to get delivered the crude in Cushing, OK, where the delivery is specified in the contract. This means that all the storage in Cushing is booked, and there is no price they can pay to store it, or they are totally inexperienced in this game and are caught holding a contract they did not understand the full physical aspect of as the time clock expires. The contract roll and liquidity crunch that made the extreme sell-off today possible but it DOESN’T necessarily represent futures market conditions: NYMEX June settled today at $21.13. The June contract is not out of the woods either: today’s action indicate that physical oil markets at Cushing are not in good shape and that storage is getting very full. A decline of over 15% in the June contract price points to real worries that the physical stress will continue to reverberate, and will force a lot more production shutdowns during May than the ones announced so far. So today negative prices are the reflection of dire market conditions for producers, with the hope that demand restart before the middle of May and that the June contract does not face the same fate.

Analyst Who First Predicted Negative Oil Prices Sees Oil Hitting Minus $100 — Back on March 17, as oil was plunging to levels not seen since the presidency of George W. Bush, we published a shocking forecast by Mizuho’s Paul Sankey who stunned oil traders with what at the time was an insane prediction: “crude prices could go negative – yes, as in you would be paid to take delivery.” According to Sankey, much of the US 4MM bpd in crude exports will be curtailed as prices fall and tanker rates soar. And with US storage roughly 50% full, and able to take another 135MM bbl more, assuming a build rate of 2MM b/d, the US can add 14MM bbl/week for 10 weeks until full.As a result, there is a now race between filling storage and negative pricing “unless U.S. decline rates can outpace inventory builds, which we very much doubt.”We concluded our own assessment by saying that “despite its low price, oil may still have at least 100% (or more) to drop.”This was proven correct. What also proven correct, just one month later, was Sankey’s apocryphal forecast when the May WTI contract crashed to negative $40 when it “suddenly” emerged that there is no place to store the hundreds of thousands of barrels of deliverable oil (held mostly by the USO ETF), something we had cautioned about… repeatedly.Having been proven correct, was Sankey content and does he now think that Monday’s insane price action ws the bottom?Oh no, not even close, because while sooner or later oil will soar – just as soon as the oil market shifts to a demand imbalance after millions of bpd in production has been indefinitely shut down and the global economy start to recover – in the meantime there is much more pain to come. “We have clearly gone to a full-scale, day-to-day market management crisis,” said Paul Sankey taking a modest victory lap, and then, talking to Bloomberg, he went a step further on Tuesday, saying: “Will we hit negative $100 a barrel next month? Quite possibly.”The reason: the (lack of) oil storage situation is going from bad to worse – something Reuters details so vividly in “Ships, trains, caves: Oil traders chase storage space in world awash with fuel” – as can be seen in the chart below…

Saudi Arabia is the winner from oil’s historic price plunge, analysts say – Saudi Arabia will be best positioned to weather the impact of an unprecedented collapse in U.S. oil prices, energy analysts told CNBC on Tuesday.It comes at a time when the market is awash with crude, storage tanks are being filled and the coronavirus crisis continues to ravage global demand.On Monday, the May contract for U.S. West Texas Intermediate futures tumbled into negative territory for the first time ever.The contract, which expires on Tuesday, traded at negative $4 a barrel during afternoon deals. Remarkably, this means traders would effectively have to pay to get the oil taken off their hands. The May contract of WTI had settled at a discount of $37.63 on Monday.The historic collapse in the market for crude oil futures was thought to have been exaggerated by the contract’s imminent expiration. The June contract for WTI, which is much more actively traded and tends to be more indicative of how Wall Street views the price of oil, stood at $15.75 a barrel on Tuesday, around 22% lower.International benchmark Brent crude traded at $20.64 a barrel Tuesday morning, over 19% lower.“Saudi Arabia and Russia have both won here, but it’s a very pyrrhic victory,” Dave Ernsberger, global head of commodities pricing at S&P Global Platts, told CNBC’s “Squawk Box Europe” on Tuesday. Riyadh and Moscow have long had U.S. shale output “in their sights,” Ernsberger continued, but “they need to look over their shoulder because Brent is not far behind, other crude benchmarks are not far behind, and the world is running out of storage.”

Here’s The Next Problem: Where Do 100 Million Oil Barrels Get Delivered… And What Happens Next Month? – The entire financial world is watching in stunned amazement as the May WTI contract crashed as low as -$40, an unprecedented – until today – event, and one which is sparking frenzied speculation who will be oil’s “Amaranth”, the nat-gas trader which remains the best example of how futures-spread positions can go wrong. But sooner or later, investors will ask themselves the next question: where will roughly 100 million barrels of oil be delivered. That is roughly the equivalent of the outstanding May WTI open interest of some 109 thousand contracts. As Bloomberg’s Mike McGlone writes, “the greater-than-normal level of open interest in May futures has no place to go but is likely to mark an extreme, if history is a guide.” As of April 17, there were over 100,000 open positions in the May contract, well above the five-year average of about 60,000. What is more striking is that while the May position stops trading at 230pm tomorrow, April 21, only about 2,000 contracts are usually delivered. This time we are looking at 100,000 contracts, or about 100 million barrels of oil. The question, of course, is where does all this oil get delivered in a world where commercial storage is expected to run out as soon as next month? And let’s say the May contract somehow finds enough space – this brings up the June contract, which is trading at around $21.51 because somehow traders believe that some magical solution will present itself in the next 4 weeks (spoiler alert: it won’t). The open interest for June is 538K contract, or the equivalent of over half a billion barrels of. While much of this will be rolled up the contago-ing curve, this still means that the world is looking at hundreds of thousands of oil barrels to be delivered next month, and the question again: where will all this oil be delivered, and what happens to the price of WTI next month? And what about July… and August… And September? As prominent squawker Yogi Chan put it best, “Back of the fag box: Take all WTI contracts from May 2020 through to Dec 2021 (covers 93% of all OI). Average price weighted by open interest? $43.48/bbl” (editor’s note: in the UK “fag” means cigarette)

June oil futures contract loses half its value as crude continues unprecedented sell-off – West Texas Intermediate crude futures for May delivery pared losses to trade in positive territory on Tuesday, one day after plunging below zero for the first time in history. The contract expires today, which means that thin trading volume has contributed to the wild price action. The massive selling gripping the oil market is now spreading to more futures contracts, worrying investors about the deep economic damage being done by the coronavirus shutdowns. The contract for June delivery, which is the more actively traded contract and therefore a better indication of how Wall Street views the price of oil, slipped 50% to $10.12 per barrel. Earlier it fell more than 60% to trade under $7 per barrel. The contract for July delivery fell roughly 27% to $19.04. The May contract stood at $10.21 per barrel after previously trading in negative territory, which means sellers would effectively pay buyers to take the oil off their hands. On Monday it fell below zero for the first time in history. However, as contracts approach expiration, trading volume is typically thin. The front part of the oil futures ‘curve,’ which is the May contract that expires today, 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. The only buyers of oil futures for that contract are entities that want to physically take the delivery like a refinery or an airline. But demand has dropped and storage tanks are filled, so they don’t need it. Futures contracts trade by month with expiration dates. Toward the end of their expiration, speculators usually trade out of the contract and then buyers who will accept physical delivery of the commodity remain. Meanwhile, in another bearish sign, international benchmark Brent crude traded 28% lower at $18.29 per barrel. Earlier in the session Brent fell to $18.10, its lowest level since Dec. 2001, before paring some of those losses.

Can Brent Crude Oil Follow WTI Into Negative Territory? You Bet – Monday’s plunge in U.S. crude futures into negative territory has raised an obvious question in the oil market: can the global Brent marker do the same? The answer is yes. ICE Futures Europe Ltd. confirmed on Tuesday night that it’s preparing various Brent prices for just that possibility if there’s demand to do so — even if there’s still a long way to go before that happens, since June contracts are trading at about $20 a barrel. Beyond the mechanistic side of negative pricing there’s also market reality: the world’s storage sites are filling with crude fast — the precise concern that caused West Texas Intermediate to turn negative. “In the North Sea, the ships operate as a pipeline, so are there enough vessels to enable the flow of oil?” said Jorge Montepeque, president of General Index and the man who helped shape the way oil prices are assessed globally when he was a boss at S&P Global Platts. “If there isn’t, you will need to pay ever increasing prices for the ships, which results in a lower and lower price of the oil.” That pressure on the tanker fleet is building right now. Well over 100 million barrels of oil is now being held in floating storage — by another estimate more than twice that. According to Belgian vessel owner Euronav NV, one of the world’s largest, the dynamic is driving freight rates ever higher — a trend the firm doesn’t see reversing any time soon. Places to keep supplies are diminishing globally. With on-land sites either completely booked up or filling fast, there’s still pressure on Brent, even if it’s more dispersed than for WTI. Barrels may keep flowing for longer than they should, too, because stopping and starting wells is no easy task. “If there is a technical reason why you cannot shut in the well, then the oil production that you have to sell will have to clear in the market, which can be a negative price,” Montepeque said. There’s another important difference between the two contracts. While the Brent futures contract is cash settled against the value of the Brent index price, the WTI contract is physically settled, meaning a trader must take delivery of barrels of oil at Cushing in Oklahoma, hundreds of miles from the coast. While this means that WTI can become pressured if there’s perceived strain on storage at the U.S. hub, there’s also a fast-building glut in the rest of the world. So Brent can, in theory at least, go negative. The real question is whether production will be scaled back sufficiently before that possibility becomes a probability.

Goldman Sees Global Oil Storage Full In 3-4 Weeks; Expects Another Oil Price Crash – While it may be tempting to argue that the worst is behind us for oil price given the historic collapse in WTI which crashed to negative $40 on Monday as holders of May WTI futures panicked to sell their holdings at any price – even paying the “buyer” for taking possession of the deliverable barrels – Goldman’s chief commodity strategist Jeffrey Currie reminds us that it is important to remember that unlike bonds and stocks, “commodities are spot assets, not anticipatory assets and must clear current supply and demand, which still remain extremely out of balance in all markets.” And since oil supply remains vastly greater than demand, we are merely in the eye of the hurricane at least until the June WTI maturity in one month, with Goldman expecting the market to test global storage capacity in the next 3-4 weeks – unlike WTI which was merely a Cushing event – which will likely create substantial volatility with more spikes to the downside until supply finally equals demand, as with nowhere to store the oil, supply has no other option but to be shut-in down in-line with the expected demand losses. Alternatively, we could see another “Monday massacre” with producers of oil willing to pay buyers to take physical possession right around the time all global capacity is full, unless of course US shale producers drastically cut output in the coming days, not weeks. That’s the bad news: the good news is that slowly the market is rebalancing, and once production is well and truly shuttered, there is a potential for a violent price reversal – but remember, one can’t just “price it in” as commodities have to reprice through the spot, not forward channel. As Currie notes, “we have now entered the inflection phase where the rebalancing has started, but this period could take 4-8 weeks to resolve before we can comfortably argue a bottom has been carved out.” This timeline assumes that peak demand loss was likely last week with nascent restarts in Europe now underway, but as Goldman concedes substantial uncertainty still remains. In conclusion, “while acknowledging that a balanced market is in eyesight, more forward-looking assets like equities can look past the next several weeks and begin to price a recovery; however, commodities simply do not have that luxury.”

Can Oil Prices Get Back To $100? Three weeks ago, on April 1, CNBC published a report titled “Oil prices could soon turn negative as the world runs out of places to store crude, analysts warn,“ which predicted exactly what is happening now. “Global oil storage could reach maximum capacity within weeks, energy analysts have told CNBC, as the coronavirus crisis dramatically reduces consumption and some of the world’s most powerful crude producers start to ramp up their output.” While the situation is totally unprecedented it’s impossible to say what will happen next for oil markets, some experts think that oil is poised for a major comeback. Even though oil prices are lower than they have ever been, “one energy fund thinks $100 a barrel is achievable,” reported the Midland Reporter-Telegram earlier this week. At the time of the report, oil was only at an 18-year low rather than an all-time low. The article intro continued: “But first, prices need to fall even further.” Well, they got their wish. As oil prices have tanked over the past two months, “Westbeck Capital Management’s Energy Opportunity Fund climbed 20.2 percent in March after declines in the first two months of the year, according to an investor letter. That puts the commodities-focused fund up 3.7 percent in the first quarter after U.S. oil futures cratered 66 percent — their worst quarter ever,” reports the Midland Reporter Telegram. “The fund, which gained 40 percent last year shorting U.S. shale companies, has turned its attention to oil tanks filling up at various points around the world, particularly at the biggest U.S. hub in Cushing, Oklahoma. With too much oil and not enough places to put it, Cushing may reach storage limits by mid-May, a market dislocation that could portend the next leg of a price rout.” This all points to a huge comeback for oil prices. As the world rushes to scale back oil production, they are setting up a bull market for the future.

The Worst Is Yet To Come for Oil Prices – Dashing hopes for some oil producers who may have thought negative prices were a weird quirk, the June WTI contract fell sharply on Tuesday. During intraday trading June contracts collapsed by more than 45 percent, falling close to $11 per barrel. The selloff demonstrated that the ruinous supply glut is not going away, and that the meltdown for the May contract was not just a bizarre anomaly, but representative of an acute state of oversupply in North America.In fact, there could be a rerun of negative prices in a month’s time, according to several analysts. “We believe prices are likely to remain at basement levels in the short-term with further shut-ins forthcoming – expect late-May to bring similar price movements as the June contract rolls over,” Raymond James wrote in a note on Tuesday.The malaise bled over into Brent prices, which collapsed below $20 per barrel by midday Tuesday, down more than 25 percent.While forecasts have suggested that U.S. oil production could fall by 1 or 2 or 3 million barrels per day (mb/d) by the end of 2021, depending on who you ask, the lack of storage and collapsing prices means that shut ins could begin to mount very quickly. “[T]he physical reality of a still massively oversupplied oil market will likely exert downward pressure on the June WTI contract,” Goldman Sachs analysts wrote on Tuesday. “But with ultimately a finite amount of storage left to fill, production will soon need to fall sizeably to bring the market into balance, finally setting the stage for higher prices once demand gradually recovers.”“This inflection will play out in a matter of weeks, not months, with the market likely forced to balance before June,” Goldman analysts warned. In other words, the U.S. oil industry could lose several million barrels per day in the next few weeks in what Goldman analysts called a “violent rebalancing.” The crisis for the industry has entered a new phase, which will surely provoke more twists and turns. The Trump administration, flailing about, is trying to come up with ways to bailout the industry. On Monday, President Trump suggested that he would consider halting imports of oil from Saudi Arabia (“We’ll look at it”), while also reiterating his plan to fill up the strategic petroleum reserve with 75 million barrels of oil.Also on Tuesday, the Texas Railroad Commission punted on the idea of mandating production cuts. Two of the three commissioners were uneasy with the idea of voting on the proposal. Ryan Sitton, the one commissioner in favor of requiring a 20 percent cut in the state’s production, argued that not voting was itself a decision, allowing the market to mete out production cuts in a disorderly fashion. “I don’t believe that inaction on our part is acceptable,” Sitton said. Meanwhile, there are other ideas for government intervention. The oil and gas industry is lobbying the Federal Reserve to loosen its $600 billion lending facility to allow drillers to use funds to repay debt, according to Reuters.

“A Recipe For Disaster” – WTI Holds Huge Gains Despite Inventory Surge – More crude chaos overnight (with AsiaPac oil ETFs trading at “crazy premiums” and Asian oil futures tumbling) has been over-ruled this morning as long-squeezes have morphed into a short-squeeze after Trump ordered the US Navy to “shoot down and destroy any and all Iranian gunboats if they harass our ships at sea”, sending June WTI soaring 40% to $16 before fading modestly into the official inventory data from DOE. “There’s no way you can predict [it] right now,” Michael Cuggino, portfolio manager at Pacific Heights Asset Management LLC, said on Bloomberg TV.“It’s virtually impossible until we have more visibility with respect to how to world comes out of the coronavirus on the other side.” Still, we suspect inventories will be a catalyst for the next leg in these chaotic paper oil markets… DOE

• Crude +15.022mm (+13.8mm exp)
• Cushing +4.776mm (+14mm exp)
• Gasoline +1.017mm (+4.4mm exp)
• Distillates +7.8765mm (+3.9mm exp)

This is the 13th weekly rise in crude inventories… Source: Bloomberg Crude stocks soared to their highest since May 2017 (this is the highest level of crude inventory for this time of year ever aside from 2017)… Source: Bloomberg Bloomberg Intelligence energy analyst Fernando Valle warns that the roll of WTI contracts showed that all remaining storage at Cushing is booked, even if not yet full… but demand has collapsed… Source: Bloomberg Refineries slowed to 67% of utilization last in the previous week, the lowest since 2008. As Bloomberg Intelligence senior energy analyst Vince Piazza notes, “U.S. crude storage capacity has about three months to go before it’s filled, as demand falls faster than production is declining.” Following a collapse in US oil rig counts, US oil production is fading back to its lowest since June 2019…

OPEC daily basket price drops to 12.22 USD per barrel (Xinhua) — The Organization of the Petroleum Exporting Countries (OPEC) daily basket price dropped to 12.22 U.S. dollars a barrel on Wednesday, compared with 14.63 dollars on Tuesday, according to OPEC Secretariat calculations released on Thursday. Also known as the OPEC reference basket of crude oil, the OPEC basket, a weighted average of oil prices from different OPEC members around the world, is used as an important benchmark for crude oil prices. It currently averages the oil prices of 13 countries, namely Algeria, Angola, the Republic of the Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates and Venezuela. Enditem

Oil Edges Higher on Slower Production in Wake of Sluggish Demand – Oil advanced as traders eye a production slowdown that has resulted from the coronavirus-led weaker demand environment. Futures in New York rose as much as 33% on Thursday. With crude trading below $20-a-barrel, U.S. production has declined rapidly, now at the lowest since last July. Operators in the U.S. have also started to shut in old wells and halt new drilling, actions that could reduce output by 20%. Plus, the number of new wells being brought online is forecast to plunge almost 90% by the end of the year, according to IHS Markit Ltd. “Cash market prices have recovered. There is a sense that the market is starting to clear itself,” said John Kilduff, a partner at hedge fund Again Capital LLC. The decline in production and rig count in the U.S. is “obviously supportive.” OPEC and its allies have also reacted to the low-price environment. The coalition agreed earlier this month to slash daily production by about 10 million barrels a day starting in May. Kuwait said it has already started cutting output, the first major producer in the Persian Gulf, the world’s most prolific oil-producing region, to announce that it’s pumping less oil ahead of schedule. Algeria also told OPEC its cuts would begin immediately. West Texas Intermediate crude for June delivery advanced $3.86 to $17.64 a barrel at 12:32 p.m. on the New York Mercantile Exchange. WTI’s June-July spread rose $1.88 to -$5.03 a barrel. Brent crude for June settlement climbed $1.93 to $22.30 a barrel on the ICE Futures Europe exchange. Still, the U.S. benchmark crude has plummeted about 70% so far this year as the coronavirus pandemic shutters economies and keeps drivers off the road. The World Bank says global commodities markets will face lasting disruption because of the outbreak. Oil markets are also having to grapple with a wave of volatility spurred by exchange-traded funds. The United States Oil Fund may roll more of its WTI contracts forward due to extraordinary market conditions, while at least two brokerages, including INTL FCStone Financial Inc., are limiting the ability of some clients to enter into new trades in the most active oil benchmarks. Even with production slowing, crude stockpiles in the U.S. are still at the highest level since May 2017, according to the Energy Information Administration. Inventories at the nation’s key storage hub in Cushing, Oklahoma, increased each week since early March and are inching closer to a maximum capacity of around 76 million barrels.

Oil Gains on Slower Production in Wake of Demand Drop — Oil advanced as traders eye a production slowdown that has resulted from the coronavirus-led weaker demand environment.Futures gained 20% in New York on Thursday. With crude trading below $20-a-barrel, U.S. production has declined rapidly, now at the lowest since last July. Operators in the U.S. have also started to shut in old wells and halt new drilling, actions that could reduce output by 20%. Plus, the number of new wells being brought online is forecast to plunge almost 90% by the end of the year, according to IHS Markit Ltd.“Cash market prices have recovered. There is a sense that the market is starting to clear itself,” said John Kilduff, a partner at hedge fund Again Capital LLC. The decline in production and rig count in the U.S. is “obviously supportive.”OPEC and its allies have also reacted to the low-price environment. The coalition agreed earlier this month to slash daily production by about 10 million barrels a day starting in May. Iraq’s Oil Minister Thamir Ghadhban said oil prices will improve once the deal kicks off.Kuwait said it has already started cutting output, the first major producer in the Persian Gulf, the world’s most prolific oil-producing region, to announce that it’s pumping less oil ahead of schedule. Algeria also told OPEC its cuts would begin immediately. Prices:

• West Texas Intermediate crude for June delivery advanced $2.72 to settle at $16.50 a barrel on the New York Mercantile Exchange.
• WTI’s June-July spread rose $1.97 to settle at -$4.94 a barrel.
• Brent crude for June settlement climbed 96 cents to end the session at $21.33 a barrel on the ICE Futures Europe exchange.

Still, the U.S. benchmark crude has plummeted more than 70% so far this year as the coronavirus pandemic shutters economies and keeps drivers off the road. The World Bank says global commodities markets will face lasting disruption because of the outbreak. Oil markets are also having to grapple with a wave of volatility spurred by exchange-traded funds. The United States Oil Fund may roll more of its WTI contracts forward due to extraordinary market conditions, while at least two brokerages, including INTL FCStone Financial Inc., are limiting the ability of some clients to enter into new trades in the most active oil benchmarks.

Oil bounces after Trump uses the ‘oldest Middle East oil trick in the book’ to kickstart prices – Oil prices recovered on Thursday, after a bellicose Wednesday tweet from US President Donald Trump sparked fears about oil supply in the Middle East.US crude-oil prices rose 20% to $16.65 a barrel in early US morning time. Brentcrude oil, the global benchmark equivalent, advanced 8.6% to $22.16 a barrel.Earlier in the week, Brent crude dropped to a two-decade low and US oil fell intonegative territory for the first time in history.The rebound in oil prices followed a fresh prospect of US-Iran tension as President Trump said on Wednesday he instructed the US Navy to “shoot down and destroy” Iranian gunboats that “harass our ships at sea.” Trump’s tweet said: “I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea.” “It is perhaps the oldest Middle East oil trick in the book: you want higher oil prices, threaten to start breaking things,” analysts at Rabobank said in a morning note. Tensions in the Middle East can lead to crude oil price increases as that would indicate a potential disruption to oil shipments around the world and cause possible supply shortages.

Oil rises, but ends wild week lower as coronavirus slashes fuel demand – (Reuters) – Oil prices rose on Friday, bringing an end to another week of losses that featured the U.S. contract plunging to minus $40 a barrel, as global production cuts could not keep pace with the collapse in demand caused by the coronavirus pandemic. Oil trading was extremely volatile all week, in an extension of the selling that has dominated trading since early March as demand collapsed 30% due to the pandemic. While certain fundamental factors, such as a sharp fall in active drilling rigs in the United States, were nominally bullish for oil prices, the positive effects of those moves are months down the road. Brent futures LCOc1 rose 11 cents, or 0.5%, to settle at $21.44 a barrel, while U.S. West Texas Intermediate crude CLc1 rose 44 cents, or 2.7%, to close at $16.94. Oil futures marked their third straight week of losses, with Brent ending down 24% and WTI off around 7%. Traders expect demand to fall short of supply for months due to the economic disruption caused by the pandemic. Producers may not be slashing output quickly or deeply enough to buoy prices, especially when global economic output is expected to contract by 2% this year, worse than the financial crisis. “The efforts to curtail supply just struggle to even come close to matching coronavirus demand destruction,” John Kilduff, partner at hedge fund Again Capital LLC in New York, said. After trading near unchanged for most of the day, the benchmarks rebounded in the afternoon after energy services firm Baker Hughes Co (BKR.N) said producers in April cut the number of active U.S. oil rigs by the most in a month since 2015. In Canada, drillers slashed the number of oil and natural gas rigs to a record low. “The rig count was another stunner. These are meaningful cuts and they have come at a rapid pace,” Kilduff said. Storage is quickly filling worldwide, which could necessitate more production cuts, even after the Organization of the Petroleum Exporting Countries and allies including Russia agreed this month to cut output by 9.7 million barrels per day. “Despite the measures taken by OPEC, oil producers in various countries should be aware that they may be called to take more drastic measures,” Diamantino Azevedo, Angola’s resources and petroleum minister, told state news agency ANGOP on Friday. Angola is a member of OPEC. Russia plans to halve oil exports from its Baltic and Black Sea ports in May, according to the first loading schedule for crude shipments since it agreed to cut output. Still, onshore oil storage is currently filled to nearly 85% capacity, according to energy research firm Kpler.

Oil futures mark a third straight gain, but post a record 32% weekly drop – Oil futures on Friday finished higher for a third straight session, but U.S. prices posted a record weekly loss of more than 32%, as commodity investors attempted to take stock of a historic collapse in prices that cast a spotlight on problems of oversupply and dwindling storage in the energy complex. After the now-expired May Nymex contract on Monday fell into negative territory for the first time ever, meaning that sellers had to pay buyers to take crude off their hands, market participants have been struggling to manage the unprecedented volatility. ReadSinking oil demand, drop in oil prices put U.S. fracking activity on track for a record monthly decline: report “Any meaningful recovery in oil prices is unlikely to last after the utter chaos witnessed earlier this week,” said Lukman Otunuga, senior research analyst at FXTM. “Oil weakness is set to remain a major theme in Q2 given the overwhelming drop in demand, fears around slowing global growth and lack of storage space.” “At this point, anything and everything is on the cards for both WTI & Brent, and this sentiment will most likely be reflected in price action moving forward,” he told MarketWatch. June West Texas Intermediate crude CLM20, +1.41%, the U.S. benchmark grade, gained 44 cents, or 2.7%, to settle at $16.94 a barrel, but the contract traded as low as $15.64 in the overnight session. On Thursday, WTI surged nearly 20%. Gains on Friday marked a third straight advance for the international and U.S. grade oils – the longest such streak of gains since a similar stretch ended March 25. Despite those outsize gains, WTI still saw a 32.3% decline for the week, based on the June contract. That was the biggest weekly percentage loss on record, according to Dow Jones Market Data.

COLUMN-Is the WTI crude fiasco relevant to Asia? Not yet, but risks loom: Russell – (Reuters) – The unprecedented collapse in U.S. oil futures into negative territory is an event that has little direct relevance for the industry in Asia, but still holds vast significance for the world’s biggest crude-importing region. The immediate fallout from the dramatic plunge into negative pricing for the front-month West Texas Intermediate (WTI) futures was largely a result of the design of the contract, which requires physical delivery to the storage hub at Cushing, Oklahoma, that is already near full. The contract dropped to as low as minus $40.32 a barrel on April 20, the day prior to expiry, as investors unable to secure physical storage had to exit positions at any cost. The dramatic swings in U.S. oil prices in recent days has been viewed by Asia’s trading community as fascinating, but not really relevant given that the vast majority of crude traded in the region is priced off Brent futures, or a combination of the Dubai Mercantile Exchange’s Oman contract and Middle East assessments by price reporting agencies. While these benchmarks have dropped sharply, they are still fulfilling their price discovery functions, and it would be hard to argue that the market for crude in Asia is currently dysfunctional, even if prices are extremely low, and in the case of the DME contract, near the weakest since its 2007 launch. The DME contract is physically settled, but delivery is at a port and is therefore unlikely to suffer from the same constraints as the landlocked delivery point for WTI. But what the fiasco in WTI futures does show is that the crude market is capable of becoming disorderly and unruly under exceptional circumstances, and Asia’s traders would be wise to be cautious. For example, the deal to cut output by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, by 9.7 million barrels per day (bpd) has largely passed by Asia, with exporting countries still appearing to compete hard on winning or keeping market share. In the wake of the deal being agreed on April 12, Saudi Arabia’s state-controlled oil company released its official selling prices for May, which raised prices for the United States, kept them flat for Europe, but cut them for Asia. Saudi Aramco’s benchmark Arab Light grade was set at discount of $7.30 to the Oman/Dubai average for Asian refiners for May loading cargoes, a steeper discount than the $4.20 for April.

Video shows Russian fighter’s ‘unsafe’ intercept of US Navy aircraft – For the second time in four days, a Russian fighter jet conducted an “unsafe” intercept of a US aircraft over the Mediterranean Sea, the US Navy said on Sunday. The Navy said in a press release that over roughly an hour and a half on Sunday, a Russian Su-35 fighter twice intercepted a US Navy P-8A Poseidon maritime patrol and reconnaissance aircraft operating in international airspace over the Mediterranean. While the first intercept was acceptable, the Navy considered the second “unsafe and unprofessional.” During the risky intercept, the Russian fighter executed a “high-speed, high-powered maneuver that decreased aircraft separation to within 25 feet, directly in front of the P-8A, exposing the US aircraft to wake turbulence and jet exhaust,” the Navy said. The P-8A descended to create space between it and the Russian fighter jet.The Navy accused the Russian pilot of “seriously jeopardizing the safety of flight of both aircraft.”The service captured the incident on video. Sunday’s intercept followed a similar incident on Wednesday, when a Russian Su-35 intercepted a P-8A over the Mediterranean, conducting “a high-speed, inverted maneuver, 25 ft. directly in front of the mission aircraft,” the Navy said in a statement at the time.The Navy said the Russian aircraft’s actions were “irresponsible” and accused Russia of putting “our pilots and crew at risk.” The US is battling a serious coronavirus outbreak, but US adversaries continue to cause headaches for the military. On Wednesday, 11 Iranian vessels “conducted dangerous and harassing approaches” against US Navy and Coast Guard vessels operating in the Persian Gulf, repeatedly crossing the bows and sterns of the US ships and at one point coming within 10 yards of a US vessel, the Navy said.

Donald Trump Threatens to ‘Shoot Down and Destroy’ Iran Ships Amid Tensions in Persian Gulf — President Donald Trump has instructed the U.S. military to use force against armed Iranian vessels that have recently engaged in tensions with the Navy’s Fifth Fleet in the Persian Gulf. “I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea,” Trump tweeted Wednesday. The tweet came one week after as many as 11 fast-attack craft of Iran’s Revolutionary Guard appeared to approach and circle a group of U.S. warships including the USS Lewis B. Puller expeditionary mobile base vessel and Island-class USCGS patrol boat Maui as they transited the Persian Gulf. The Fifth Fleet accused the Revolutionary Guard of conducting “unsafe and unprofessional actions,” while the elite Iranian force argued it was the U.S. Navy that was responsible for “illegal, unprofessional, dangerous and even adventurist behavior” both during the April 15 and in allegedly blocking its Shahid Siyavoshi ship in separate encounters a week before. Trump’s tweet sparked anger among Iranian officials, especially as both Washington and Tehran battled the novel coronavirus disease known as COVID-19. “In the midst of a global coronavirus pandemic when all attentions worldwide is to combat this menace, the question is what the US military is doing in Persian Gulf waters, 7000 miles from home,” Iranian mission to the United Nations spokesperson Alireza Miryousefi told Newsweek. “Iran has proven that it will not succumb to intimidation and threats, nor will it hesitate to defend its territory, in accordance with international law, from any and all aggressions.”

Iran-US tensions rise on Trump threat, Iran satellite launch – (AP) – Tensions between Washington and Tehran flared anew Wednesday as Iran’s Revolutionary Guard conducted a space launch that could advance the country’s long-range missile program and President Donald Trump threatened to “shoot down and destroy” any Iranian gunboats that harass Navy ships. The launch was a first for the Guard, revealing what experts described as a secret military space program that could accelerate Iran’s ballistic missile development. American officials said it was too early to know whether an operational Iranian satellite was successfully placed into orbit. Trump’s top diplomat accused Iran of violating U.N. resolutions. After Iran’s announcement, Trump wrote on Twitter, without citing any specific incident, “I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea.” Last Wednesday, the U.S. Navy reported that 11 Guard naval gunboats had carried out “dangerous and harassing approaches” to American Navy and Coast Guard vessels in the Persian Gulf. The Americans used a variety of nonlethal means to warn off the Iranian boats, and they eventually left. Such encounters were relatively common several years ago, but have been rare recently. “We don’t want their gunboats surrounding our boats, and traveling around our boats and having a good time,” Trump told reporters Wednesday evening at the White House. “We’re not going to stand for it. … They’ll shoot them out of the water.” Iran said the U.S. was to blame for last week’s incident. Conflict between Iran and the U.S. escalated after the Trump administration withdrew from the international nuclear deal between Tehran and world powers in 2018 and reimposed crippling sanctions. Last May, the U.S. sent thousands more troops, including long-range bombers and an aircraft carrier, to the Middle East in response to what it called a growing threat of Iranian attacks on U.S. interests in the region. The tensions spiked when U.S. forces killed Iran’s most powerful general, Qassem Soleimani, in January. Iran responded with a ballistic missile attack on a base in western Iraq where U.S. troops were present. No Americans were killed but more than 100 suffered mild traumatic brain injuries from the blasts.

Iran Vows to Destroy Any Threatening U.S. Forces in the Persian Gulf Following Trump Threat – The commander of Iran’s Islamic Revolutionary Guards Corps (IRGC) has warned that his forces will respond to any perceived threat in the Persian Gulf, after President Donald Trump ordered U.S. forces to sink Iranian vessels harassing American ships. Hossein Salami, the IRGC commander-in-chief, said Thursday he had ordered his forces in the Gulf to destroy any vessel or combat unit that threatened the safety of Iranian ships, according to the Iranian Young Journalists Club news agency. Salami specifically referred to “any American terrorist force” posing a threat. The COVID-19 coronavirus pandemic has overshadowed continued tensions between the U.S. and Iran in recent months, but the animosity between Washington and Tehran has resurfaced in recent days. Last week, as many as 11 fast-attack IRGC ships encircled a group of U.S. warships in the Gulf. The U.S. Fifth Fleet said the move was “unsafe and unprofessional,” while the IRGC said the American ships were engaged in “illegal, unprofessional, dangerous and even adventurist behavior” in the area. Then on Wednesday, Iran successfully launched a military satellite into orbit for the first time. The successful launch could have implications for the country’s intercontinental ballistic missile program, which is one of the grievances that prompted Trump to withdraw from the Joint Comprehensive Plan of Action in 2018. Iran has denied that the satellite launch is connected to its ICBM program. Hours after the launch, Trump said he had ordered military units in the Gulf region to respond aggressively to any perceived Iranian threat. “I have instructed the United States Navy to if they harass our ships at sea,” Trump tweeted.

ISIS Has Nothing Over Saudi Arabia – Kingdom Reaches 800 Beheadings Under Salman – Another grim milestone was reached this week, but not on the COVID-19 front. Human rights monitors have recorded that Saudi Arabia has carried out its 800th execution since King Salman bin Abdulaziz (and by extension MbS) began his rule five years ago – most being in the form of the kingdom’s ‘favored’ beheadings. The British nonprofit Reprieve said the kingdom’s rate of execution in Saudi Arabia has doubled since 2015 when King Salman took over following the death of his half-brother, King Abdullah. Of course, as Salman’s health was reportedly increasingly fragile from the start of his rule, it’s widely believed crown prince Mohammed bin Salman (MbS) has remained the true power and day-to-day decision maker. MbS was widely hailed as a ‘reformer’ – among other things promising to greatly reduce the number of annual executions, which include the ghastly methods of beheading and crucifixion. But this is nowhere near the reality. So much for empty talk of ‘reform’, ‘modernization’ and ‘progress’ – as Middle East Eye reports of Reprieve’s findings: By comparison, Saudi authorities executed 423 people between 2009 and 2014.Currently, there are at least 13 juvenile defendants on death row – including Ali al-Nimr, Dawood al-Marhoon and Abdullah al-Zaher – who are “at imminent risk of execution”, Reprieve and the European Saudi Organisation for Human Rights said.Saudi Arabia executed six young men last year who were children at the time of their alleged offences, in a mass execution of 37 people. Riyadh’s concerns no doubt now lie far elsewhere regarding the prior MbS rhetoric of reform, given the kingdom is now scrambling to bring oil prices back up after the historic global price crash this week. Reform vs. Reality – public beheadings as a form of political suppression: Apparently ‘Chop Chop Square’ was busy as usual even amid the more pressing crisis of the accelerating oil glut. As of only last week, Amnesty International recorded 789 executions under the king, which only days later grew to 800.

Middle East Not Even Worth Invading Now Oil Is Worthless – US MILITARY generals and private contractors were said to be inconsolable at the news that international and as well as home produced oil is now worth as little as minus $36 a barrel, scuppering any motivation for haphazardly pointing at a random Middle Eastern nation on a map and saying ‘invasion time’.Crude oil, once the most sought after commodity in the world is now, by the barrel load, worth less than non-brand toilet roll, a price drop which has left many war fans devastated.“Aw man, I hate this pandemic,” remarked a sulking Republican politician who had his heart set on a decades long war in Iran or some such oil plenty country that could create the sort of needless casualty numbers that inspired him to become a war mongering politician in the first place.With the price collapse rendering oil less than worthless, many are contemplating if Middle Eastern countries and their citizens are even worth destroying.“I’m just sad for all the locals won’t get jobs rebuilding the schools we arbitrarily drone bombed into oblivion,” confirmed one private contractor, who feared proxy wars would actually have to take place on home soil. “What do you expect me to do now, go to the Middle East as a civilian tourist and experience the differing cultures, languages and history, and leave with just a fridge magnet having not committed a massacre? Are you fucking nuts?” confirmed one military man with an itchy trigger finger.

US Ramps Up War in Somalia, Killing More Civilians –While much of the world tries to fight a global pandemic that has already killed thousands, the U.S. military has been secretly stepping up its war in Somalia, killing civilians in the process.Soon after President Donald Trump took office in 2017, U.S. Africa Command (AFRICOM) began ramping up its air war. Since then, it’s only increased its tempo. In the first few months of 2020, the U.S. has already conducted at least 39 airstrikes in Somalia. To put that in perspective, AFRICOM carried out 63 air strikes during the entirety of 2019.The U.S. says these airstrikes are to assist the government of Somalia in its war against the non-state armed group al-Shabaab and “increase the security of the Somali people as these terrorists indiscriminately attack and extort innocent civilians.” Yet the increase in strike activity has not fulfilled its purpose on the ground. Al-Shabaab was driven out of the Somali capital, Mogadishu, by a multinational force led by the African Union Mission to Somalia, or AMISOM, in 2011, but still controls vast swaths of the Somali countryside. Even if al-Shabaab was pushed out of this territory, the government of Somalia appears to be incapable of securing and governing those parts of the country. On top of that, al-Shabaab’s lethal attacks on civilians in Somalia have only increased even as the U.S. ramps up its bombing.In the meantime, the U.S. continues to kill a growing number of civilians with these airstrikes, without acknowledgement or accountability. A year ago, Amnesty International – where I work – reported the deaths of 14 civilians in just five air strikes that it was able to investigate. The U.S., at that point, had acknowledged 131 lethal air strikes in Somalia since early 2017, but claimed that all of those killed were “terrorists.” AFRICOM says it investigates claims of civilian casualties, but it does not contact witnesses, family or community members to determine who the victims were. In the past year, the U.S. has acknowledged civilian deaths occurred in two cases, but even then, it never contacted the family or offered them assistance.

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