Tuesday, 21 Apr 2020 07:36 AM MYT
Investors sold the May futures contract due to expire today in a series of waves. At one point the contract hit negative US$40 . When the trading stopped, crude oil had ended the day at a negative US$37.63 a barrel, a decline of some 305 per cent, or US$55.90 a barrel. That realisation sparked yesterday's sell-off in US futures markets because of the technicalities of the West Texas Intermediate futures contract, which expires today. When oil contracts expire, the holder has to take possession of 1,000 barrels of oil for every contract they own, delivered to Cushing.
For the first few hours of trading yesterday, the May oil futures steadily edged lower, widening the gap between that contract and the June contract, which, while weak, still ended the day at more than US$20 a barrel. But with expiration on the way today, the selling accelerated in the last two hours, with oil finally hitting negative territory roughly 20 minutes before the close of trading.
However, it took the Organization of the Petroleum Exporting Countries, Russia and other countries until early April to agree to cut supply by 9.7 million bpd. Other nations, like the United States and Canada, did not mandate cuts from private industry, but those companies are swiftly reducing output.
Crude stockpiles at Cushing rose 9 per cent in the week to April 17 to around 61 million barrels, market analysts said, citing a Monday report from Genscape. The hub has capacity for roughly 76 million barrels.