Physical Fuels and Crude Trade Below NYMEX

Physical fuel markets are taking a pummeling. While futures markets have fallen significantly, fuel and crude prices for immediate delivery are trading far lower. For example, while NYMEX gasoline prices are roughly 50 cents per gallon, current Chicago gasoline wholesale prices are trading around 20-30 cents per gallon – a hefty discount to future prices.

In crude markets, low-quality Canadian crude is barely trading for $5/bbl, and even physical Permian crude is trading below WTI’s $20/bbl market level. One Wyoming crude grade even turned negative recently – the producer paid people to take supply. The collapse of NYMEX price levels tells half the story but doesn’t show just how dire the price war and COVID-19 have been for fuel and crude prices.

Expect physical fuels to continue hurting. The Trump Administration’s decision to extend social distancing guidelines through April 30 caused yet another market sell-off this morning, with most markets posting in the red. The administration also suggested limiting domestic travel for residents in New York, Connecticut, and New Jersey.

For American oil producers, the price collapse will inevitably force production cuts. US production surpassed 13 million barrels per day (MMbpd) in February, a record high. Forecasts vary on how much production will fall – Bloomberg is forecasting a 1.5 MMbpd drop, while others predict production will fall to 8 or 9 MMbpd. Many shale producers will go bankrupt during this period, but those that survive will be stronger than ever. After the 2014-16 price war ended, shale emerged more efficient than before. Production areas throughout the US are accustomed to the boom-and-bust nature of the industry. Leading oil historian Daniel Yergin summed it up well: “Companies go bankrupt, but rocks don’t go bankrupt.”

At the NYMEX level, crude prices continue facing pressure, though well above what physical markets are feeling. NYMEX WTI crude prices are based on crude delivered to Cushing, OK in May – and markets are clearly hoping for more demand in May than now. WTI Crude futures are trading at $20.20 currently, down $1.31 per barrel.

Fuel prices are also falling. NYMEX fuel prices are based on delivery to NY Harbor next month. NYMEX diesel prices are currently trading at $1.0377, down 3.1 cents. Gasoline prices are trading at $0.5057, down 6.8 cents from Friday’s close.