US Oil Price Crashes to NEGATIVE $37 a Barrel for May
COVID Maoists at work!
US crude prices plunged to their lowest level in history on Monday as traders continue to fret over a slump in demand due to the coronavirus pandemic. Starting at an already record low of below $5 late on Monday, the future contract prices started trading in the negative within the hour. US benchmark WTI oil price closed at -$37.63/barrel.
On Monday, a technical oddity exacerbated the price plunge as traders fled the May futures contract ahead of its expiration tomorrow [Tuesday]. The following month’s contract [June] fell 11 per cent to under $22.22 a barrel.
— Bloomberg (@business) April 20, 2020
At 1.44 EDT (9.44pm Dubai time, April 20, 2020), the West Texas Intermediate crude stood at $2.12. Then WTI crude for May delivery tanked 94%, to $0.97, its lowest level on record.
It dropped even further to a ridiculous 20 cents/barrel before starting to trade in the negative.
What is happening?
After beating the record low multiple times, West Texas Intermediate (WTI) for May delivery continued to sink to the unheard of price of a penny a barrel and below.
When a futures contract expires, traders must decide whether to take delivery or roll their positions into an upcoming contract. Usually this process is relatively uncomplicated, but the May contract’s decline reflects worries that too much supply could hit the markets, with shipments out of OPEC nations booked in March set to cause a glut.
The June WTI contract is trading more actively at a much higher level of $21.6 a barrel. The spread between May and June was more than $23, the widest in history for the two nearest monthly contracts.
Investors bailed out of the May contract ahead of expiry later on Monday because of lack of demand for the actual oil.
Analysts said this month’s agreement between OPEC and its peers to slash output by 10 million barrels a day was having little impact because of the virus lockdowns and travel restrictions that are keeping billions of people at home.
This latest plunge is threatening to erase an entire decade of demand growth, slashing thousands of jobs and wiping out hundreds of billions of dollars from company valuations.
This is the historical timeline for the price of oil. That sharp drop at the end there?
— Charlotte Clymer 🏳️🌈 (@cmclymer) April 20, 2020
Brent declined 5.8% to around $26.44. Brent Crude is more ubiquitous in the market, and most oil is priced using Brent Crude as the benchmark, at least to the tune of two-thirds of all oil pricing.
Industrial and economic activity is grinding to a halt as governments around the globe extend shutdowns due to the swift spread of the coronavirus. Oil has faced its own knock-on effects with a market massively oversupplied and nowhere to put physical barrels of crude. An unprecedented output deal by OPEC and allied members a week ago to curb supply is proving too little too late in the face a one-third collapse in global demand.
— Bloomberg (@business) April 20, 2020
“There is little to prevent the physical market from the further acute downside path over the near term,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets. “Refiners are rejecting barrels at a historic pace and with U.S. storage levels sprinting to the brim, market forces will inflict further pain until either we hit rock bottom, or COVID clears, whichever comes first, but it looks like the former.”
“For many investors or people using these contracts for hedging this is really a big pain,” said Edward Moya, market analyst at OANDA in New York. “There’s no place to put it – we’re running out of space to store oil.”
Since the start of the year, oil prices have fallen by more than 90% after the compounding impacts of the coronavirus and a breakdown in the original OPEC+ agreement. With no end in sight, and producers around the world continuing to pump, that’s causing a fire-sale among traders who don’t have access to storage.
Signs of weakness everywhere
There are signs of weakness everywhere. Buyers in Texas are offering as little as $2 a barrel for some oil streams, raising the possibility that producers may soon have to pay to have crude taken off their hands. The spread between the nearest two contracts for the U.S. benchmark has fallen to its weakest level on record. In Asia, bankers are increasingly reluctant to give commodity traders the credit to survive as lenders grow ever more fearful about the risk of a catastrophic default.
Source: Gulf News