Oil 2020 Contracts Falls to $50

The growing gloom that sent oil markets reeling last week appears to be much more than a short-term phenomenon.

Oil contracts for 2018 and beyond, normally slow to follow fluctuations in more speculative short-term prices, have also collapsed amid a 10 percent dive in immediate delivery futures, reflecting a deepening pessimism over the long-term outlook for a battered industry.

U.S. crude futures are now trading at below $50 a barrel through the end of 2019, a level at which most shale drillers would struggle to turn a profit. No futures contracts – which are currently dated to 2024 – are priced above $54 a barrel. Just a few months ago many analysts and executives expected oil prices to rebound to at least $60 within a few years.

But in an unusual twist, the long-term outlook has deteriorated almost as quickly as short-term fundamentals as more and more investors come around to Goldman Sachs’ view of a downturn far longer-lasting than anyone expected.

The selloff shows traders “continue to price in that we have a very serious global oversupply situation,” said Michael Wittner, global head of oil research at French bank Société Générale. “It’s going to take a long time to work it off.”

As front-month oil futures fell $3.60 a barrel this week to settle at $33.16 a barrel on Friday, West Texas Intermediate oil futures for delivery in December 2017 fell by $2.66, or 5.6, percent to $45.02 a barrel, while the 2018 contract dropped by $2.69 a barrel, or 5.3 percent, to $48.05 a barrel – unusually steep declines that cut both to contract lows.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza