Todays video explains what it means that oil futures fell to a negative price today.
U.S. crude oil prices had their worst day on record today, with crude storage facilities filling rapidly as the coronavirus pandemic continues to crush demand.
A futures contract for U.S. crude prices dropped more than 100% and turned negative for the first time in history on Monday, showing just how much demand has collapsed due to the coronavirus pandemic.
This collapse into negative territory is not reflective of the true reality in the oil market. The price of the May oil futures contract, which expires Tuesday, detached from later month futures contracts, which continued to trade above $20 per barrel.
West Texas Intermediate crude for May delivery fell more than 100% to settle at negative $37.63 per barrel, meaning producers would pay traders to take the oil off their hands.
This negative price has never happened before for an oil futures contract. Futures contracts trade by the month. The June WTI contract, which expires on May 19, fell about 18% to settle at $20.43 per barrel. This contract, which was more actively traded, is a better reflection of the reality in the oil market. The July contract was roughly 11% lower at $26.18 per barrel.
Meanwhile, international benchmark Brent crude stood at $26.41 on Monday, around 6% lower for the session.
This comes amid concern that the volume of oil held in U.S. storage is rising sharply, with the coronavirus crisis compounding the problem by dramatically reducing consumption.
The current forward crude oil curves for Brent and WTI are now in what the financial press is calling Super-Contango. The contango is very front-loaded,
A contango market implies oil traders believe crude prices will rally in the future, encouraging them to store oil now and to sell at a later date.
OOO Price at posting:
$19.36 Sentiment: Buy Disclosure: Held
