Oil fell following wild price swings set off when a major index tracked by billions of dollars in funds said it would exit near-term contracts for fear prices may turn negative again. West Texas Intermediate for June delivery declined 3.4% Tuesday after both the outright price of futures and the spread between the June and July contracts were rocked by volatility. An abrupt decision by S&P Global Inc. to tell clients to sell their stakes in the June contract caused prices to plunge to near $10 a barrel in intraday trading. Crude inventories are filling quickly, forcing investors to confront the possibility that space won’t be available for physical barrels before the June contract expires.
“The June contract is going to be like what happened with May,” said Tariq Zahir commodity fund manager at New York-based Tyche Capital Advisors LLC. “It could go to twenty dollars, it could go to four dollars, it could go negative. You’re in unprecedented times. June could be all over the place.” The discount on crude for June delivery relative to July, a structure known as contango, widened to as much as $7.69 a barrel before recovering to $5.26.
“You always see contangos when storage starts filling up,” Zahir said. “The spread getting out to these levels is being exaggerated with these funds. Just them selling the June contract and buying the July contract, that alone is going to widen the spread.” An American Petroleum Institute report showed that U.S. crude stockpiles rose 9.98 million barrels last week, according to people familiar. Supplies in Cushing, Oklahoma, rose 2.49 million barrels while gasoline inventories fell 1.11 million.