US Crude Crawls Back into Positive Territory After Sharp Selloff

Published April 21st, 2020 - 09:00 GMT
US Crude Crawls Back into Positive Territory After Sharp Selloff
US crude oil futures turned negative for the first time in history as storage space was filling up, discouraging buyers as weak economic data from Germany and Japan cast doubt on when fuel consumption will recover. (Shutterstock)
Highlights
The collapse also came together with more signs of a slow and difficult recovery from the COVID-19 pandemic.

US crude oil bounced back into positive territory on Tuesday, but a historic plunge below zero rattled investors and triggered the steepest drop in Asian stock markets in a month, said a Reuters report.

Traders could not give away West Texas Intermediate overnight after a storage squeeze turned holders of the contracts expiring later on Tuesday to forced sellers.

A $39 rise leaves the price for May delivery at $1.38 per barrel.

MSCI’s broadest index of Asia-Pacific shares outside Japan lost 2%, as did the Nikkei, EuroSTOXX 50 futures and FTSE futures. E-mini futures for the S&P 500 fell 0.5%, while bonds and the dollar rose.

On Monday, US crude oil futures turned negative for the first time in history as storage space was filling up, discouraging buyers as weak economic data from Germany and Japan cast doubt on when fuel consumption will recover.

That meant oil producers were paying buyers to take the commodity off their hands over fears that storage capacity could run out in May. Physical demand for crude has dried up, creating a global supply glut as billions of people stay home to slow the spread of the novel coronavirus.

As a result, oil firms have resorted to renting tankers to store the surplus supply and that has forced the price of US oil into negative territory.

The May US WTI contract fell $19.06, or 104.3%, to a discount of 79 cents a barrel at 2:09 pm (1809 GMT) after touching an all-time low of -$1.43 a barrel. Brent was down $1.85, or 6.6%, at $26.23 a barrel.

The severe drop on Monday was driven in part by a technicality of the global oil market. Oil is traded on its future price and May futures contracts are due to expire on Tuesday. Traders were keen to offload those holdings to avoid having to take delivery of the oil and incur storage costs.

The June WTI contract is trading more actively at a much higher level of $21.6 a barrel. The spread between May and June was more than $23, the widest in history for the two nearest monthly contracts.

“The (oil) price action was scary,” said Kyle Rodda, market analyst at IG Markets in Melbourne. “It points to the fact that supply and demand has been destroyed.”

The collapse also came together with more signs of a slow and difficult recovery from the COVID-19 pandemic.

“Weak oil prices and China’s negative growth are reminders that the coronavirus has hurt demand.”


Copyright 2021 Al Hilal Publishing and Marketing Group

You may also like

Subscribe

Sign up to our newsletter for exclusive updates and enhanced content