Crude Prices Turn Negative For First Time in History

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Oil Falls More Than 100%

The price of oil has plunged into negative territory for the first time in history this week. Crude continuous futures contract plunged more than 100% yesterday to – $40 per barrel. Despite rallying off the lows, crude still ended the day in negative territory yesterday for the first time on record. The dramatic sell-off in WTI prices comes amidst an intensification of concerns around the excess supply in the market.

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OPEC+ recently agreed on proposals to cut a further 9.7 million barrels per day from the market. However, with lock-downs still in place around the world and recessionary fears building, the measures appear to have fallen short of reassuring the market which has collapsed in the last 24 hours.

EIA Inventories Rising into Record Territory

The latest inventory figures out of the US have reflected this excess supply glut with EIA reported inventories rising further into surplus territory. With fears over the storage capacity of many of the main holding sites in the US, the market is now reaching a critical point.

Speculators are capitalizing on the negative backdrop through excessive selling. Indeed, while many industry analysts point out that oil is well-oversold here, further downside risks remain while the supply glut exists.

Market in Contango

The price of crude oil for future delivery is now more expensive than the spot price. This is known as the market going into contango and reflects a total loss of near-term demand for oil. The massive sell-off on Monday was attributed to mainly technical selling as traders abandoned the May contract ahead of its expiration.

The situation, with spot now more expensive than the June forward contract, has been referred to as a mega-contango. This further reflects the severity of current conditions.

Outlook Remains Bleak

Indeed, even as nations now start to contemplate easing domestic restrictions in some places, oil is still suffering a gaping lack of demand. The travel restrictions still in place around the world have- meant a loss of demand from the aviation sector. This sector is typically the second-largest sector in terms of oil demand.

With these travel restrictions likely to remain for some time and with lock-downs likely to remain in place for at least the next month, the outlook for crude remains bleak here.

Oil Plunges To Record Lows

WTI

The plunge in oil this week has seen the market moving into uncharted technical territory. Breaking down below the 1986 lows of 9.65, oil prices are now sitting in fresh technical area. While they remain below 9.65, further losses are likely. For now, the only support is yesterday’s low of -40.75.

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