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By Smith Sharlin

Apr 21,2020

- 37.63 / barrel, sell oil upside down! The lowest

The may WTI crude settled at -$37.63 a barrel late Monday, according to brokers, the first time in history that the contract has ever closed in negative territory.

The cause of the extreme movements is not difficult to explain, affected by the outbreak of the global oil demand is bluff fell, and the storage of crude oil physical constraints, the traders of crude oil at sea "drift" has been more than 160 million barrels, serious overcapacity in a month delivery crude oil become commodities as a "hot potato".

The spread between the may and June contracts briefly exceeded $60 a barrel on Monday night.

It is worth noting that the last trading day of the may contract is theoretically Tuesday local time in the us (many brokers are already in the clearing process), so traders who still hold the contract will theoretically enter the physical delivery phase.

So with limited storage space, low volumes (only a seventh of the bulk contracts) combined with virtually zero incremental demand contributed to today's historic slump.

With the exception of WTI crude today, almost all us physical crude delivery prices, regardless of location and variety, went into negative territory.

Helima Croft, global chief commodities strategist at RBC Capital in New York, said there is still a lot of crude offshore that refiners do not need, and there is no sign of a recovery in the oil market in the near term.

Why did may crude fall below $0?

On the news side, a flurry of news ahead of the contract's expiration in May suggested that U.S. crude storage space was nearly full.

The international energy agency last week forecast that global oil demand would fall by 9.3m b/d this year from last year, and by 29m b/d in April, to its lowest level since 1995.

The U.S. energy information administration also reported last week that U.S. crude inventories rose by more than 19 million barrels from the previous week, two consecutive weeks of record increases and 12 straight weeks of increases.

The Numbers mean traders will soon run out of room to store crude.

For futures traders, if uneven may long contracts, means that will receive the oil spot, and only a few days time to tell the seller how to receiving, at a time when all the oil warehouse in Cushing has been scheduled, the oil market condition, inventory close to full capacity, if forced settlement caused by the loss of storage cost is much higher than the storehouse.

The may contract has become a hot potato for pure virtual traders, with the price of WTI crude plunging as traders were forced to unwind long positions to avoid buying physical crude without storage capacity.

Bob Yawger, director of mizuho futures, said that while pipelines and inventories are full, the EIA data do not show that crude stocks are at their peak.

The main reason for the sell-off was that traders long the may contract were rushing to unwind their positions.

Daniel Hynes, senior commodity strategist at anz, noted that monthly contracts typically converge with spot prices as they approach the end of their term.

Traders who want to trade paper contracts rather than cash will sell the may contract and buy the June contract instead.

But spot prices are particularly weak at the moment, hit by collapsing demand and a lack of oil in storage, which may explain why spreads on May contracts have widened markedly compared with June.

Hynes expects the spread between monthly contracts and spot contracts to remain under pressure for the next month or so.

Bjornar Tonhaugen, head of oil markets at Rystad Energy, commented that the global imbalance between supply and demand was starting to really feed into prices.

Compared with demand, oil production has not been damaged and stocks are growing.

Crude oil futures may also fall below $0 in June

Whether the June WTI contract can avoid a slump still depends on production, demand and inventories.

Further declines in oil prices could lead to more producers shutting down, further reducing demand.

If demand does not pick up by mid-may, the WTI crude contract for June could face the same fate.

Bank of America merrill lynch said it will take several weeks for U.S. crude to rebalance and expects the WTI crude futures contract for June to turn negative if demand does not pick up.

Some analysts believe that there are still many refineries in the sea do not need the crude oil, in the short term do not see the oil market recovery positive factors, ultra-low oil prices will continue for a period of time!

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