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How negative oil prices revealed the dangers of the futures market

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A demand plunge amid the coronavirus crisis, coupled with a price war between oil giants Saudi Arabia and Russia, spurred a historic drop in oil prices. Watch the full video here:

The crash in demand for oil that followed the pandemic played a major role in the move to negative prices. "At the trough, we probably saw demand in April bottom out down 30%. So we've never seen anything like this certainly in the last 40 years since world oil markets have developed," said Severin Borenstein, a professor of business at the University of California, Berkeley.

. As supply remained steady while demand struck record-breaking lows, the industry quickly began running out of storage space to put their oil. This was devastating news for investors of WTI futures who are expected to take physical possession of the oil when the contract expires. "WTI is special in a way because it's so tightly connected to physical oil," said Derrick Morgan, senior vice president of American Fuel & Petrochemical Manufacturers.

As the delivery date for WTI grew near, investors began a massive sell-off to take the contract off their hands, prompting an unprecedented crash into the negative territory.

 

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$175/BBL 2025!! Cha ching

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