• Stocks higher in what could be a mirage
  • Gold and silver correct- Platinum and palladium recover
  • Crude oil tanks despite a 9.7 mbpd production cut
  • Agricultural commodities mostly lower
  • The economic news will remain bleak

 

The story of this week:

NYMEX Crude Oil Rolls From May To June- The Price Action Is Ugly

OPEC, Russia, and other oil-producing nations around the world worked together to come up with a 9.7 million barrel per day reduction in output, the most substantial production cut in history. The price action in the crude oil futures market as of April 17 was a sign that a twenty or thirty-million-barrel reduction was necessary to stabilize the price of the energy commodity.

At the end of last week, NYMEX crude oil futures rolled from May to June contracts. On April 15, the price of the expiring May contract fell to a marginal new low at $19.20 per barrel.

Source: CQG

As the chart shows, on Friday, April 17, the price of May futures fell to $17.31 per barrel, the lowest level since 2001, in the aftermath of the terrorist attack on 9/11.

The demand for crude oil has evaporated as the global economy remains in a self-induced coma. The US is the world’s leading consumer, and while President Trump rolled out a plan to open the economy over the coming weeks and months, demand for crude oil will not come storming back any time soon. The next level of technical support for the energy commodity stands at $16.70 per barrel, the low from 2001.

In what is likely to be a mirage over the coming days and weeks, the high level of contango put the now active month June NYMEX futures contract at $25.03 as of the close of business on Friday, which was a premium of an incredible $6.76 above the settlement price of the May futures at $18.27 per barrel. The 37% one-month contango is a sign that finding storage locations for crude oil has become more of an impossibility than a challenge. The one-year June 2020 versus June 2021 contango stood at $10.73 per barrel or 42.9% as of the close of business on April 17.

Many oil companies will not be able to service debt, and bankruptcies over the coming weeks and months will become the norm rather than the exception. The US and other governments around the world consider the survival of the oil and gas business a matter of national security. However, only the leading companies will survive. The assets of the other energy firms will wind up for sale at bargain-basement prices. In the US, Exxon Mobile (XOM) is as close to a state-owned oil company as you can get. In Europe, BP and Royal Dutch Shell are likely survivors. Russian and Saudi state-owned companies will also be in a position to pick up the pieces.

While the stock market has recovered on the back of unprecedented levels of liquidity and stimulus, the oil patch is telling us that the road ahead has more than a few bearish potholes. At the end of last week, the stock market was little more than a mirage as the deflationary spiral continued.

Highlights in commodities: 

  • June gold falls 3.08% lower on the week, settling at $1698.80 per ounce
  • May silver declines 4.72% as the precious metal settled at $15.295 per ounce on April 17
  • July platinum moved 4.90% higher on the week. July platinum was at a $913.50 per ounce discount to June gold futures, which narrowed since last week
  • June palladium edged 0.99% higher and settled at $2,130.90 per ounce. Rhodium rose $2000 per ounce to a midpoint of $7,500 over the past week
  • May copper was 3.76% higher to the $2.3445 level since April 10
  • May iron ore futures moved 1.40% higher over the past week
  • The BDI rose 14.33% since April 10 to the 726 level
  • May Rotterdam coal fell 3.26% since last week
  • May lumber was 6.09% higher since April 10 and was at the $341.70 per 1,000 board feet level
  • May NYMEX crude oil fell 19.73% higher and closed the week at $18.27 per barrel as May rolled to June
  • June Brent crude oil fell 10.51% as contango between May and June made the decline in Brent less dramatic than in WTI
  • The premium for Brent over WTI in June closed Friday at the $3.14 level as the spread moved $0.48 higher since last week
  • May gasoline rose 4.93% while May heating oil futures posted a 1.68% loss over the past week
  • The gasoline crack spread in May was 112.13% higher since last week. May heating oil crack moved 22.49% higher since April 10 as the products outperformed crude oil futures
  • Natural gas rose 1.15% on May futures closing the week at $1.7530 per MMBtu. The EIA reported an injection of 73 bcf into storage on Thursday for the week ending on April 10
  • May ethanol rose 3.62% on the week
  • May soybeans moved 3.59% lower since last week
  • May corn was 2.86% lower on the week
  • CBOT May wheat was 4.13% lower since last week. May KCBT wheat trading at a 57.75 cents discount under May CBOT wheat as the discount moved 9.75 cents towards historical norm since last week
  • May sugar fell 0.58% since April 10 and closed at 10.37 cents per pound
  • May coffee posted a 2.15% loss since last week
  • May cocoa rose 3.21% since April 10
  • May cotton fell 2.94% since last week as the fiber futures were at the 52.77 cents per pound level
  • May FCOJ futures fell 2.87% since the previous report to $1.0660 per pound
  • June live cattle moved 2.28% higher since last week
  • May feeder cattle gained 0.27% since April 10
  • June lean hog futures were 10.17% lower over the past week as producers get stuck with supplies, but shortages develop for consumers
  • The June dollar index futures contract rose 0.33% on the week to 99.836 as the index trades around the 100 level
  • June Long-Bond futures were trading at 180-11 up 1-16 for the week
  • The Dow Jones Industrial Average closes at 24,242 on Friday, April 17, up 523 points from April 9. The S&P 500 rose 3.04% since last week. The VIX was trading at around 38.15 on Friday down 3.52 on the week as the stock market grinds higher
  • Bitcoin was trading at $7,110.09 on Friday down $130.42 or 1.80% since April 10
  • Ethereum was trading at $171.70 on Friday, up 1.41% since the last report

 

Price Changes for the week:

DBC closes at $11.44 per share, down 12 cents since April 10

 Source: Barchart

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $779.2 million and trades an average daily volume of 1,805,958 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average volume rose slightly over the past week and net assets were steady as the price of the ETF posted a loss.

Please stay safe and healthy during these unprecedented times.

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.