The COVID-19 Oil Crash#Infographic

The Great Lockdown continues to flip markets on their head. Last week, we dug into the exceptional quantity of preliminary jobless claims coming out of the United States, which topped 22 million in a length of 4 weeks. It’s simply days later, and we already have our subsequent market abnormality: this time, merchants had been baffled with the aid of West Texas Intermediate (WTI) crude — the U.S. benchmark oil charge — which in some way flipped bad for the first time in history. How is that possible? And how does it tie into the COVID-19 oil rate crash in general?

Up till recently, this used to be a pretty run-of-the-mill oil fee crash — however then costs all of sudden sunk beneath zero, with May futures for WTI oil closing at -$37.63 on April 20th. For the first time in history, producers had been inclined to pay merchants to take oil off their hands. This oddity is partly a characteristic of the particularities of futures contracts. Buyers Wanted (At Any Cost!)Futures contracts typically roll over to the subsequent month barring a great deal happening, however, in this case, merchants noticed the May contract as a “hot potato”. No one desired to be caught taking shipping of oil when the world is awash in it and the USA is in lockdown.
A Time and a Place

Oil futures contracts specify a time and location for delivery. For WTI oil, that precise area is Cushing, Oklahoma. With most storage ability booked already, taking bodily transport wasn’t even a choice for many players. In different words, dealers outnumbered consumers with the aid of a loopy margin — and due to the fact oil is a bodily commodity, anybody has to in the end take the contract.
At the time of publishing, the May contract and spot fees have “rebounded” to about $10. The June contract is barely higher, at $13.

Source: www.visualcapitalist.com

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