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The oil market has come through the most frenetic week in its history — especially so for the US WTI grade that controversially was allowed to fall into negative territory.
On April 20 it closed at an almost unbelievable minus $37 per barrel (for the end of May contracts) before recovering to $16.94 per barrel.
Despite the drama, the US measure finished the week only $1.30 lower than the previous week closing.
It was also a roller-coaster ride for Brent crude, which tumbled to a 21-year-low, first dropping to about $16 before recovering to $21.44.
Money managers increased their net-long positions in Brent crude oil futures and options by 22,665 contracts to 134,119 for the week ending April 21, which represents a six-week high. It will be interesting to see how many of the these options and futures will be translated into physical deliveries.
Although WTI plunged into negative history for the time, net long positions for US crude futures and options also rose by 51,991 contracts to 209,734 over the week. That represents a three-month high. So clearly the expectation is that US oil prices will rise.
The market anomalies of the last week again highlight the disconnect between underlying supply and demand for physical oil on the one hand and the trading of oil-based financial instruments on the other. It is a wake-up call for an industry long blighted by speculation.
As the world emerges from COVID-19 quarantines, oil market fundamentals will likely improve. But we should not forget the chaos of the last week and the urgent need for more transparent international oil benchmarks that it signals.