Futures oil supply contracts below zero first time in history

Oil supply contracts in May fell to below zero for the first time in history. That means, if we want to buy oil today, which we will take in May, then the seller will pay us for it.

Traders want to avoid the physical collection of crude oil, which makes futures contracting for such physical collection unprofitable. And thus yesterday the price of May contracts broke the record for the lowest level of oil prices since 1946.

All because the May oil futures expire today, which means that if someone has purchased such a contract, they must collect physical raw material.

So those who bought the May contracts are literally trying to get rid of them at all costs, so as not to receive a supply of physical raw material, which they have nowhere to store.

Why did this happen? All because of the deepening economic turmoil caused by the coronavirus crisis. The crisis, which caused a drop in demand for oil, combined with overproduction in many countries, meant that we have too much oil today.

The sharp drop in prices by several dozen dollars in one day is to some extent a technical adjustment related to the specifics of trading in futures contracts on WTI, as PKO BP economists comment. But they add that this is a clear signal of a large excess of oil supply in the face of strongly weakened demand and depleted storage capacity.

Experts point out that oil production must be reduced as soon as possible, and until this happens, such market anomalies may recur.

(300sekund)