A Bailout Sinks WTI by 300% to Trade in Negative Territory and Pay Buyers to Take Oil

U.S. oil prices turned negative on Monday for the first time in history over a plummet of 300% ahead of the May contract expiration Tuesday.

 

The May WTI contract fell $55.9/bbl or 306% to settle at -$37.63/bbl after reaching an all-time low at -$40.32/bbl. Meanwhile, Brent dropped $2.51/bbl or 9% to settle at $25.57/bbl.

The demand in crude oil continued to plunge as people around the globe decided to stay home to prevent the spread of coronavirus, especially in the U.S. which has the most infections and deaths.

Refiners are processing less crude than it used to, resulting in hundreds of millions of barrels gushed into storage around the world. Reports showed that traders have hired vessels to fill the excess oil. A record 160 million barrels is sitting in tankers around the world.

“The storage is too full for speculators to buy this contract, and the refiners are running at low levels because we haven’t lifted stay-at-home orders in most states,” said Phil Flynn, an analyst at Price Futures Group in Chicago.

With the price turned to negative territory, meaning that sellers have to pay buyers for the first time ever to buy their crude oil futures.

 

Normally, the process at the expiry date of a crude contract is uncomplicated. When the contract expires, traders must decide between taking delivery or roll their positions into another futures contract for a later month. However, the oil storage is filling quickly and there are very few counterparties this time that will buy from investors and take delivery when the storage is almost full. The result is a Monday bailout before the expiry date on Tuesday.