chinazh
A negative oil price – a market quirk, or the ‘new normal’?

A negative oil price – a market quirk, or the ‘new normal’?

21-04-2020 | 市场观点

The price of US oil temporarily dipped below zero for the first time in history, which means an oil supplier has to pay someone to take it off their hands. The May futures contract for West Texas Intermediate (WTI) reached minus USD 37 a barrel on 20 April before recovering to a more normal plus USD 20/bbl – itself an 18-year low. In this Q&A, Rob Schellekens, portfolio manager in the Emerging Markets Equities team, explains how it happened and what it all means.

  • John Coppock
    John
    Coppock
    Investment writer
  • Rob Schellekens
    Rob
    Schellekens
    Portfolio manager

WTI dropped below zero – this is unprecedented. What exactly happened?

“Oil is sold in monthly futures contracts. When WTI contracts expire, which they did on 21 April, you have to physically hand over the oil. This is not something that happens with Brent Oil, for example, where you can settle in cash. With WTI, you can either roll over to the next month, or deliver in physical barrels. If you take the barrels, the problem is it has to go somewhere, and demand is thin while storage capacity is almost full. A significant part of the owners of the futures are financial investors who do not want to take the oil. In this unprecedented situation, some of them have chosen to pay people to take it off their hands, and that’s when you get the strange situation of negative pricing.”

关注官方微信
QR code Wechat

What are the underlying causes of this anomaly?

“It’s basically caused by a perfect storm of current over-supply and a sudden and catastrophic drop in demand. The oil market has seen strong production growth for the last few years from the US shale oil producers; the OPEC nations tried to balance the market with production cuts, but with limited success. And then we got the coronavirus situation, when global demand for oil suddenly dropped – by some estimates by 20-30 million barrels a day, or about 20%-30% of normal global consumption. That is because many countries have been locked down, with limited flying in planes or driving cars. This situation, combined with the expiration of the futures contracts, have brought about the negative prices.”

What is to be expected from oil prices in the coming weeks?

“It’s going to be volatile due to many factors at play. The two biggest questions are of course when will global demand start to recover – for this, the lockdowns need to be loosened or ended? And secondly, what will happen on the supply side? Will OPEC+ come up with another agreement, and to what extent will US shale oil production decline? Our expectation is that oil prices will stay lower, but volatile, until at least the second half of this year, and will then slowly recover as the global economy starts recovering as well.”

How do oil prices developments impact our portfolios?

“Depending on the strategy, by and large, we have modest exposure to the oil segment. From a country perspective, we are underweight the majority of the oil-exporting nations such as the Gulf states, Mexico and Malaysia, and are slightly overweight Russia. So, the portfolios are more geared to the oil-importing countries which should benefit from a lower oil price. Within the energy sector, we are more exposed to gas, distribution companies and integrated energy, and not to pure play upstream oil.”

Will structurally low oil prices hinder the energy transition?

“We believe that these very low oil prices are not structural in nature and that the path taken to transition the energy mix will be followed. In the meantime, the speed at which the transition takes place can vary. For example, in the European power generation sector (which is one of the first segments to transition), the use of gas in the power generation mix has increased over the recent past at the expense of coal. Part of this can be attributed to the low cost of natural gas at the moment."

免责声明:

本文由荷宝海外投资基金管理(上海)有限公司(“荷宝上海”)编制, 本文内容仅供参考, 并不构成荷宝上海对任何人的购买或出售任何产品的建议、专业意见、要约、招揽或邀请。本文不应被视为对购买或出售任何投资产品的推荐或采用任何投资策略的建议。本文中的任何内容不得被视为有关法律、税务或投资方面的咨询, 也不表示任何投资或策略适合您的个人情况, 或以其他方式构成对您个人的推荐。 本文中所包含的信息和/或分析系根据荷宝上海所认为的可信渠道而获得的信息准备而成。荷宝上海不就其准确性、正确性、实用性或完整性作出任何陈述, 也不对因使用本文中的信息和/或分析而造成的损失承担任何责任。荷宝上海或其他任何关联机构及其董事、高级管理人员、员工均不对任何人因其依据本文所含信息而造成的任何直接或间接的损失或损害或任何其他后果承担责任或义务。 本文包含一些有关于未来业务、目标、管理纪律或其他方面的前瞻性陈述与预测, 这些陈述含有假设、风险和不确定性, 且是建立在截止到本文编写之日已有的信息之上。基于此, 我们不能保证这些前瞻性情况都会发生, 实际情况可能会与本文中的陈述具有一定的差别。我们不能保证本文中的统计信息在任何特定条件下都是准确、适当和完整的, 亦不能保证这些统计信息以及据以得出这些信息的假设能够反映荷宝上海可能遇到的市场条件或未来表现。本文中的信息是基于当前的市场情况, 这很有可能因随后的市场事件或其他原因而发生变化, 本文内容可能因此未反映最新情况,荷宝上海不负责更新本文, 或对本文中不准确或遗漏之信息进行纠正。
Logo

Disclaimer

The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).

The funds shown on this website may not be available in your country. Please select your country website (top right corner) to view the products that are available in your country.

Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.

Please confirm that you are a professional investor and/or institutional investor and that you have read, understood and accept the terms of use for this website.

I Disagree