By Barani Krishnan

Investing.com – Oil’s Black Monday feels like so long ago. Since WTI’s expiring contract, May, fell into the abyss of negative pricing – hitting minus $40 before settling at minus $37 – it has come bouncing right back. By Friday’s close, U.S. crude was just below $17 – in the positive but still miles away from the $61 level where it began the year.

At its current trajectory, WTI is expected to attempt a return to $20 pricing in the coming week. It might just make it. But whether it gets to stay there will be decided by another phenomenon that’s unfolding now in U.S. crude – one that’s likely to set us up for another round of sub-zero prices.

WTI’s front month, June, finished the week at a contango, or discount, of more than $4 per barrel to July. Open interest in the spot contract was also about 25,000 lots less to the nearby month.

This signaled investors’ preference to be in a “safer” contract that pledges to deliver oil later rather than sooner in a glutted market.

Just as important, it was a sign that June WTI could also be up for a squeeze like May, when its expiry comes up in three weeks.  

“The fundamentals have not changed since Monday,” for WTI, said Igor Windisch, analyst at the IBW Oil Brief.

“There is no bullish economic news on consumption-demand to come anytime soon. OPEC+ supply cuts will not come in for another 7 days. And stocks continue to fill up. There’s still an imbalance in the fundamentals of roughly 5 million barrels per day and until that persists, I do not see the price of crude going up substantially and with sustainability, i.e. a trend reversal,” Windisch added.

For emphasis, he cites a Bloomberg story from Thursday about how some oil traders were taking advantage of the dire shortage now in tanker space by sailing longer routes than usual and at slower speeds.

“Charterers are asking for slower speed voyages, ~11.5 knots instead of 13,” Windisch wrote. “That takes even more space out of the tanker market … supporting super high freight rates too. And that makes the contango even more steep, because it costs more to store…etc…a nice virtuous circle for the ones who are in it.”

Virtuous or not, what determines WTI’s fate now is storage. According to the U.S. Energy Information Administration, at the end of last week, there was only about 16 million barrels of space left at the Cushing, Oklahoma hub serves as delivery point for expiring WTI contracts. 

Total builds in U.S. crude have, in fact, averaged 16 million barrels per week over the past four weeks. Of course, not all that oil will come to Cushing. But the hub itself saw a 5-million build last week. If that rate of fill is maintained, then Cushing could max out in the 3 weeks. Anyway, even this math may be academic as the EIA indicates that much of the space at Cushing may have already been leased out, leaving an even smaller probability of existing space there.

Aware that investors were already bailing out of June WTI – and by extension, June Brent – various brokerages, including AMP Global Clearing, TradeStation Securities Inc, INTL FCStone, Marex, have imposed restrictions on customers from taking new positions in both.  For orders that still came in, margin requirements were raised.

“When you think about some of these firms, their customers were probably not trading for size,” said Bob Yawger, director of the futures division for Mizuho. “But when you take on an aggregate amount of these folks, it adds up and you definitely lose some liquidity in the front.”

Bottomline: The trust deficit in WTI’s front-month is growing, with more than three weeks to its expiry. What oil needs are cuts faster than OPEC promises. As of now, time isn’t on crude’s side.

In gold’s case, the race is still on for a test of $1,800, though volatility could keep it at the lower end of $1,700.

Since the coronavirus crisis struck, gold has been joined at the hip with U.S. equities. And what’s good for Wall Street these days is good for the yellow metal too, as a tumble in stocks would likely spark a liquidation in gold, whose unique position as a store of value enables easy redemption to cover losses anywhere.

Energy Review

Oil prices remained higher for a fourth straight day on Friday, while closing the week down after Monday’s historic negative pricing. 

settled up 44 cents, or nearly 3%, at $16.94 per barrel.. For the week, it was down 7%.

, the London-traded global benchmark for crude, closed up 11 cents, or 0.5%, at $21.44. It was down 24% on the week. 

Despite the four-day rally, open interest in WTI’s front-month trailed that of the nearby July contract – an ominous sign for anyone playing long on the front-price of U.S. crude.

“More brokers, and not just the discount brokers, are limiting access to the first contract of oil futures,” Olivier Jakob, founder of Zug, Switzerland-based oil-risk consultancy PetroMatrix, said.

“If open interest continues to move early out of the first month, it could be increasingly difficult for the roll of indices still having holdings of front-month futures, but as well for the delta-hedging of options,” Jakob added. “Margin requirements are also increasing to take into account the volatility seen this week.”

Energy Calendar Ahead

Monday, April 27

Private Genscape data on Cushing oil inventory estimates

Tuesday, April 28

weekly report on oil stockpiles.

Wednesday, April 29

EIA weekly report on

Thursday, April 30

EIA

Friday, May 1

weekly rig count.

Precious Metals Review

Gold’s delicate dance in the $1,700 zone continued Friday as gains on Wall Street limited the yellow metal’s slide against the dollar’s rally to a near three-week high.

for June delivery on New York’s COMEX settled almost flat at $1,745.65 per ounce. For the week, though, it was up 2.3% after Wednesday’s strong move into $1,700 territory.

, which tracks live trades in bullion, last traded at $1,728.86, down $2.28, or 0.1%, at $1,728.86. For the week, June gold was up about $45, or 2.7%.

The , which pits the dollar against a basket of six currencies, was flat at 100.44 after hitting an 18-day high of 100.98 earlier.

Wall Street’s headed for a gain of 2.5% in Friday’s trade boosted by optimism ahead of the reopening of business in several U.S. states after a more than shutdown over the coronavirus. 

Despite the relative stability in U.S. stocks, the safe-haven crowd behind gold has a bigger worry for the coming week: India’s continued lockdown amid the Covid-19 pandemic and how that would affect demand from bullion’s biggest supporter.

“Gold is going to have to face a little adversity over the next couple of trading days with the U.S. dollar making fresh new weekly highs overnight and with the world’s largest import country of gold on nation-wide lockdown,” said Nicholas DeGeorge, senior market strategist for precious metals at RJO Futures in Chicago.

Gold is a sacred metal in India, whose ornamental value is second to none to the nation’s 1.4 billion people. Statues of Hindu deities in Indian temples are typically adorned with the yellow metal, which is also a staple expense at weddings. India’s central bank holds most of its reserves in gold and Indians generally wear gold jewelry in daily life and at social occasions, resulting in an annual import of 800 to 900 tonnes. 

India’s second largest buying day of the year for gold comes up this Sunday and its lockdown “will surely impact physical demand” for the metal, said DeGeorge.