Takeaway: Cushing logistical storage capacity less than reported by EIA; Continued price weakness into June; Potential OPEC deep cuts for all of 2020

REPLAY: Oil Market’s CAT-5 Storm & What’s Next for June  - IMG 2737

Replay | Energy Policy: Oil Flash Call w/ Guy Caruso

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Hedgeye’s Joe McMonigle was joined by Guy Caruso, former head of the U.S. Energy Information Administration, for a client conference call to discuss the Coronavirus CAT-5 storm that hit oil markets Monday sending WTI's May contract into negative pricing.  

Caruso and McMonigle discussed Cushing storage concerns and massive demand declines and whether we can expect a similar situation in June. Several key points addressed during the call included:

  • EIA reported last week available Cushing storage was 21 million barrels but because it requires some operational working storage, the effective capacity is less than the number published by EIA. We are getting very close, days, to logistical capacity at Cushing.
  • We believe there will be continued weakness in the June WTI contract because there is a lot oil on the water is heading to the US that was sold in early March when Saudi Arabia cut prices after the failed OPEC meeting. The oil will start arriving in early May.
  • Several US PADDS are at 1-1.5 million barrels away from setting 5-year highs but not getting to "full utilization" as EIA would report.
  • Wednesday's EIA weekly petroleum inventory report will show huge crude storage builds.
  • The only chance to save June will be potential steps to reopen the US economy and send some demand signals before the contract's expiration on May 19.
  • Policy options under consideration: 1) Moves that will affect GDP and mobility are best way to help oil sector and prices; 2) Trump tweet today hints at a special Federal Reserve lending facility for energy companies to survive COVID-19 transition; and 3) Trump likely to use the oil market red phone to ask Saudis/OPEC+ to expedite or deepen production cuts.

Click on REPLAY to hear the full discussion.