U.S. crude prices turned negative for the first time in history

• 2020-04-21
• Traiding Idea

U.S. crude prices turned negative for the first time in history

The futures contract for US crude fell more than 100% and turned negative for the first time on Monday.

The international benchmark, Brent crude, for June delivery settled 8.9% lower at 25.57 per barrel.

WTI crude for May delivery settled at negative $ 37.63 per barrel. Meaning producers would pay buyers to take the oil off their hands.

One of the reasons behind the fall in US crude oil prices is the imminent expiration of the May futures contract on Tuesday. So those who had the contract had to take the oil, and this was their last chance to get rid of the contract, so they were willing to sell it at any cost, which led to an unprecedented drop in oil prices.

Contracts for the coming months usually converge with spot prices near their expiration date.

If the producer cannot stop the production (stopping will damage the oil well), or if it is not possible to store it (due to storage fils up or high cost), a negative price will be formed.

While most parts of the United States are quarantined due to the Corona outbreak, with the sharp rise in supply and falling prices in recent days, the capacity of all oil depots has been filled, and there is no longer any demand for crude oil.

"Global oil storage is rapidly filling – exceeding 70% and approaching operating max," said Steve Puckett, CEO of Trizen International.

''There is still a lot of crude on the water right now that is going to refineries that do not need it,'' Helima Croft, global head of commodities strategy at RBC Capital, said.