Oil plunges 321% to -$40/barrel for the first time ever as demand evaporates

21 Apr, 2020 03:13
source: Singularity Financial

Singularity Financial Hong Kong April 21, 2020 – by David Lee

U.S. crude futures suffered a historic selloff on Monday as WTI turned negative for the first time ever as uncertainty mounted around storage of excess supply.

WTI crude oil futures expiring in May plunged 321% to close at negative $40.32 a barrel, while Brent slid 9.5% to $25.41 at intra-session lows, their lowest in almost two decades.

The coronavirus pandemic has torpedoed demand for the commodity, with fuel use in cars and planes slumping. The commodity fallen over the past week even after OPEC and its allies agreed to a historic production cut intended to backstop prices.

Oil is now in contango

The movements prompted WTI oil prices to enter contango, meaning that oil contracts for future delivery are more expensive than spot prices.

“The contango on WTI from now spot to the June contract can be described as a mega-contango,” Jeffrey Halley, a senior market analyst of Asia Pacific at Oanda, said. “As of Friday, spot was $18 a barrel with the June contracts around $25 a barrel.”

“The extreme contango tells us nobody in America wants the oil in the short-term,” Halley added.  Monday’s price action pushed the commodity further into contango.

“For an investor who holds a long term perspective, a time frame of 12 months to 24 months, the current plunge in oil price represents an opportunity,” Aslam said.