WTI crude oil futures prices plummeted, and traders were forced to close their positions to avoid buying physical crude oil without inventory.
At present, the most important factor affecting oil prices is not production cost, but inventory, especially in inland oil-producing areas, such as Cushing District. The epidemic situation caused problems such as poor infrastructure and transportation and logistics, which made it difficult to transport or store crude oil. It is necessary to continue production because of the risk of shutting down the oil well for economic reasons. If the storage tank inventory is insufficient or the storage cost is too high, the manufacturer would rather accept the negative oil price and lose money for the buyer to take away.
Chris Midgley, a global energy information analyst at Prap, said that Cushing is an inland city, and the capacity of crude oil warehouses is likely to be full within three weeks. Once filled, WTI crude oil futures contracts will be more difficult to deliver in kind.
The U.S. us energy information administration announced last week that crude oil inventories in the United States increased by more than 6,543.8+0.9 million barrels last month, recording an increase for two consecutive weeks and an increase of 6,543.8+0.2 weeks. These figures mean that traders will soon have insufficient space to store crude oil.
In short, the futures in May fell. The futures in May will expire tomorrow. Don't move the warehouse today. You have 40,000 gallons of oil in one hand. Where did you put it? Storage costs will be affected. So, until now, people who haven't moved the warehouse are desperately selling, the price is free, and the sticker is upside down. Why do they want to close their positions?
At the same time, the international standard Brent oil contract in June broke $26/barrel, updating the low level since April 2, falling nearly 8% in the day and 10% last week. Brent crude oil is more suitable for shipping and transportation than WTI crude oil, so it is not limited by direct storage to some extent, and WTI crude oil is usually transported by pipeline.
After Tuesday's trading, most parts of the United States are still blocked by coronavirus infection. The only buyers of crude oil contracts in May hope to be the entities that actually deliver the goods, such as refineries and airlines. However, since the oil tanks are full, these entities do not need crude oil now.
Bobyawger, head of Mizuho Futures, said: WTI crude oil futures fell to a negative value, which is a historic day. This shows that there is no storage space for crude oil, which is basically washed away by water, and crude oil is worthless. At present, oil pipelines and stocks are full, but strangely, EIA data does not show that the current crude oil stocks have reached the maximum storage capacity. The reason for the plunge was that traders who signed contracts in May were eager to close their positions.
However, the WTI futures in May were significantly discounted compared with the June contract, mainly because of concerns that the storage center in Cushing, Oklahoma was running at full capacity.