What Happened In Oil Today???

Last week was epic, monumental and historical for the price of oil. Oil prices went negative for the first time in history. Thus, I wasn’t expecting oil prices to get so volatility again until mid-April…that’s when the June contract expires. I was actually expecting oil prices to move a bit higher before that time. However, when the dynamics of supply and demand are at play, get out the way.

Oil prices tumbled Monday as more signs emerged that the glut of crude supplies on world markets will overwhelm storage capacity soon even as top producers pull back earlier than expected.

South Korea has already run out of commercial storage space, Bloomberg reported. And Goldman Sachs analysts estimated that global capacity limits could start to be tested in three weeks, forcing oil traders to offer steeper discounts to get physical barrels off their hands

Just a week ago, U.S. oil prices plunged into negative territory for the first time ever amid storage in regional markets.

We are in a super contango environment. With storage tanks filling up quickly, there is limited storage space left. Thus, there was no demand for May’s oil contract that expired last week. That’s why oil prices turned negative…oil producers are paying to people/entities to take the oil of their hands.

As a result, USO has changed their buying criteria recently. Now USO may invest approximately 20% of its portfolio in crude oil June futures contracts, approximately 50% of its portfolio in crude oil July futures contracts and approximately 20% of its portfolio in crude oil August futures contracts. Also, USO announced an 1 for 8 reverse split.

The 1 for 8 reverse split means that for every eight shares of USO common stock you currently own, you'll receive one share of (new) USO common stock to replace them. When the markets open on April 29, your net position in USO will be equal to what it was before the split, plus or minus market movements.

During the last time oil prices plunged, 200, 000 jobs were cut, including thousands of layoffs by non-energy companies that provide equipment used to drill for oil like Caterpillar and Joy Global and more than 60 companies went belly-up. Earlier this month, Whiting Petroleum (WLL) became the first big shale company to file a Chapter 11 reorganization plan. Today oil prices claimed its second victim.

Diamond Offshore Drilling, Inc. provides contract drilling services to the energy industry worldwide. The company operates a fleet of 15 offshore drilling rigs, including 4 drillships and 11 semisubmersible rigs. It serves independent oil and gas companies, and government-owned oil companies.

Diamond Offshore Drilling (DO) filed for bankruptcy protection on Sunday. Diamond said that Hess was its biggest customer and Occidental was its second biggest customer in 2019. These two companies accounted for almost 50% of Diamond’s revenue.

Occidental has their own issues. Earlier this year, Chief Executive Officer Vicki Hollub said the dividend was one of the characteristics that define the company and vowed to protect it. Two weeks later, Occidental cut its dividend for the first time in 30 years to conserve cash to cover debt incurred in its acquisition of Anadarko Petroleum in 2019.

To make matters worse, 40 million barrels of oil produced by Saudia Arabia is headed to America in very larger crude carriers (VLCC) which should arrive in a couple of weeks. I anticipate by that time, those tankers won’t be able to unload because there will be no more room.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.

Posted Using LeoFinance