May Oil Falls 300% And Gets Negative Price For The First Time In History
With a sharp drop in demand due to coronavirus and full inventories, the price of the WTI futures contract that expires tomorrow reached US $ -37, said seudinheiro.
The price of future oil fell below zero for the first time in history on Monday, April 20, 2020. The WTI-type oil contract for delivery in May, negotiated in the United States, fell more than 100% shortly after 3 pm , Brasília time, being negotiated at negative prices. The closing price was $ 37.63 a barrel (that’s right, LESS $ 37 and 63 cents), representing a drop of more than 300%.
These contracts expire tomorrow and have physical delivery, but buyers who would be interested in receiving the commodity have full stocks.
The oil storage capacity in the United States is practically at the limit, due to the halt in activities in the country to combat the coronavirus pandemic.
Thus, a negative price means that the supply is much higher than the demand and is already beginning to exceed storage capacity. With that, the producers could, in theory, pay anyone who wanted to buy oil, given that the storage costs exceed market prices.
Another factor that weighs on the price of oil this Monday is that the traders who would roll over their positions for June have chosen to close them. The sharp drop in WTI over the weekend meant that the difference between the prices of contracts with delivery for May and June became very large, making the rollover financially disadvantageous.
The WTI for June, the most liquid contract today, closed down 18.38%, at US $ 20.43 a barrel.
The sharp drop in oil in the USA also contaminated the price of Brent-type oil, negotiated in London, which, however, fell much less. Brent’s June contract fell 8.94% to $ 25.57 a barrel.
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