International investors are actively increasing their investments in oil. According to Emerging Portfolio Fund Research (EPFR), over the past week $ 4 billion was received in the respective funds, and over $ 11 billion over the past five weeks. However, these volumes are not enough to compensate for the falling demand for oil due to quarantine measures adopted worldwide .
EPFR data indicate a high demand from international investors for oil investments. According to Kommersant’s estimates, based on Bank of America data (taking into account EPFR data), for the week ending April 22, international investors invested nearly $ 4 billion in oil exchange funds. This is one and a half times higher than the previous week. Since the beginning of the year, over $ 16 billion has been received in profile funds, of which more than $ 11 billion has been received over the past five weeks.
However, the current inflow of investments is not enough to reverse the negative trend in the oil market.
According to Reuters, over the past five weeks the cost of North Sea oil Brent decreased by half, to $ 20 per barrel. Since the beginning of the year, prices have fallen three times. Pressure on oil quotes is exerted by real demand, which has fallen due to quarantine measures taken around the world. According to the forecasts of the International Energy Agency, in April demand will fall by 29 million barrels. Considering that the main consumer countries are in no hurry to remove all restrictions in the near future, the imbalance may persist in May. The most acute situation with an oversupply is felt in the USA, where problems are exacerbated by the lack of free storage facilities. Under such conditions, the price of WTI oil for the first time in history fell into the negative area (see Kommersant on April 20). According to Norbert Rücker, chief macroeconomist and promising research director at Julius Baer, the storage facilities are not yet full, but it is obvious that the remaining volumes have already been fully booked.
Longer contracts also came under pressure.
According to Reuters, the cost of the June contract Wti on Tuesday it was below $ 13 per barrel, two times less than last Monday. According to the head of the BCS Broker stock market experts department Vasily Karpunin, risks remain that the price of the nearest WTI contract will become negative, although “many participants are ready to reduce their positions in advance.” It was the active withdrawal of investment funds from the May contract at the beginning of last week that caused a drop in value along the entire curve of WTI contracts. According to the head of the analytical department of Otkritie Bank Anna Morina, now funds are shifting the balance of the futures portfolio from July to September. “According to the standard investment strategy of the United States Oil Fund (USO, one of the largest players in this market .— “B”) had 20% in the June contract, 50% in July and 20% and 10% in the following months, respectively. Considering the oil drawdown and the expected recovery in the third quarter, as well as the exchange’s requirements to limit open positions for each participant, USO has changed the investment scheme, and now it looks like 20–40–20–20%, ”Ms Morina explained. At the same time, market participants doubt the possibility of falling prices on the European oil market below zero, since there are no problems with the shipment of raw materials. According to Anna Morina, Brent futures is a non-deliverable contract, settlements are made in cash.
In this situation, Russian oil feels better Urals. If in normal times, domestic oil is traded at a discount to North Sea, then at present it is at a premium. According to Reuters, in the spot market, the price of Russian oil is $ 13.7-15.5 per barrel, while Brent is trading at $ 11.5 per barrel. Urals is heavy oil, and there is currently an oversupply of light and ultralight oil on the market due to the high supply of Saudi Arabia. “In a situation of scarcity, Urals is being sold at a premium. Since May, Russia has been reducing oil exports through the ports of the Baltic and Novorossiysk by 40%, according to the decision of OPEC +. Thus, supply and demand for Urals in these ports are shifting towards deficit, hence the premium to the price of Brent, ”says Anna Morina.