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Oil plunges 321% into negative territory for the first time ever as demand evaporates



  • Oil prices plunged to a record low and into negative territory on Monday as uncertainty mounted about storage for excess supply.
  • WTI crude oil futures expiring in May plunged 321%, to -$40.32 a barrel, while Brent crude slid 9.5%, to $25.41 at intrasession lows.
  • The coronavirus pandemic has torpedoed demand for the commodity, with fuel use in cars and planes slumping.
  • The commodity has fallen over the past week even after OPEC and its allies agreed to a historic production cut intended to backstop prices.
  • The WTI market has entered contango, meaning spot prices are lower than prices for future delivery of crude oil — a highly unusual occurrence.
  • Follow the price of oil live with Markets Insider.


Oil plunged into negative territory for the first time on record on Monday. The commodity's latest round of sharp selling came as uncertainty mounted about storage for excess oil. Demand for crude has plummeted since the coronavirus outbreak froze activity worldwide.
The price of West Texas Intermediate crude oil futures expiring in May plunged 321%, to -$40.32 a barrel, the lowest level ever recorded. Brent crude losses were muted by comparison, with the commodity sliding 9.5%, to $25.41 a barrel at intrasession lows.
The price of oil has continued to slide even after OPEC and its allies agreed to the biggest-ever production cut — one intended to backstop prices. Investors remain unconvinced that the cuts can offset cratering demand for the commodity as the novel coronavirus pandemic keeps society from operating normally.
Read more: Why the price of oil is continuing to free-fall after a historic supply cut — and when experts think it may finally reach rock bottom
WTI crude for May delivery has traded at large discounts to longer-dated contracts. That dynamic is playing out amid worry that a key storage hub in Cushing, Oklahoma, is nearing capacity, according to Bloomberg.
"Basically, bears are out for blood," said Naeem Aslam, the chief market analyst at AvaTrade. "The steep fall in the price is because of the lack of sufficient demand and lack of storage place given the fact that the production cut has failed to address the supply glut."
He added: "The bottom line is that there is no doubt that oil prices are way oversold at the current level, but given the circumstances, it is likely that the price may continue to fall further because the rig count hasn't touched its bottom yet."
Read more: GOLDMAN SACHS: Buy these 21 stocks that are beating their peers by paying down debt amid an unprecedented plunge in cash spending
Oil prices and rig counts are strongly correlated. Higher oil prices make production more profitable, encouraging more producers to operate.
The closely watched Baker Hughes oil-rig report showed that as of Friday, oil-rig counts in the US were 544, down roughly 35% from the same time in March.

Oil is now in contango


The movements prompted WTI oil prices to enter contango, meaning oil contracts for future delivery are more expensive than spot prices.
"The contango on WTI from now spot to the June contract can be described as a mega-contango," said Jeffrey Halley, a senior market analyst for Asia-Pacific at Oanda. "As of Friday, spot was $18 a barrel with the June contracts around $25 a barrel."
Halley added that "the extreme contango tells us nobody in America wants the oil in the short-term." 
Monday's price action pushed the commodity further into contango.
"For an investor who holds a long term perspective, a time frame of 12 months to 24 months, the current plunge in oil price represents an opportunity," Aslam said.
Read more: One of the world's best small-company fund managers tells us how he finds 'hidden growth' that others miss — and shares his 3 top picks for the year ahead
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Stocks Extend Drop; Oil Futures Fall Below Zero: Markets Wrap

U.S. stocks fell from a six-week high, with investors on edge as oil futures plunged to unprecedented levels and a spate of corporate earnings on tap.
The S&P 500 halted a two-day gain and the Dow Jones Industrial Average fell more than 2%. Chevron and Exxon led losses in the blue-chip index as West Texas oil futures expiring Tuesday turned negative for the first time, primarily because the end of the May contract forces physical receipt at a time when storage capacity is low. June prices fell below $22 a barrel.
Gains in large-cap tech had buoyed equities for much of the morning, but the support faded in the afternoon. Congress is negotiating a fresh spending bill to offset the pandemic’s effects, and signs have emerged that New York is past the worst of its outbreak.

“It’s going to take some time for us to come back and there’s no guarantee we’ll come back without a resurgence,” said Jerry Braakman, chief investment officer of First American Trust, in Santa Ana, California, which is managing $1.8 billion.
The Stoxx Europe 600 Index edged higher. Shares retreated across much of Asia, though the benchmark in Shanghai rose. European bonds dropped as Treasuries advanced.
Investors start the week weighing both the oil crash and signs that Congress is close to a fresh spending package. The pace of earnings season is about to pick up, with almost one-fifth of S&P 500 companies reporting this week. Coca-Cola Co. and Netflix Inc. are among companies due to report in the coming days.
Governments and policy makers are continuing attempts to limit the economic damage of the pandemic. U.S. lawmakers are moving closer to a deal to top up funds for small businesses, China pledged more stimulus as banks lowered borrowing costs and European officials are discussing creating a bad bank for the region, according to the Financial Times.




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