US crude oil futures plummeted 300percent per barrel - US $37 Trump: bottoming

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 US crude oil futures plummeted 300percent per barrel - US $37 Trump: bottoming


Negative oil prices mean that the cost of transporting oil to refineries or storage has exceeded the value of the oil itself.

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The three major U.S. stock indexes fell more than 1% on Monday, with the Dow down nearly 600 points, dragged down by crude oil futures.

Why is this extreme trend? Is American crude really so cheap?

Selling oil by sticking backwards

On Tuesday, the oil market will face two major challenges:

First, Texas crude oil regulators will meet again to discuss crude oil production restrictions and may vote.

Second, the futures contract of May of USOC moved to another month. The final trading on the market was completed at 2:30 a.m. on April 22, Beijing time, and the final trading on the electronic disk was completed at 5:00 a.m.

The two biggest risks are piling up on Tuesday, and its a tough time for bulls.

The latest market shows that the settlement price of light crude oil futures in West Texas in May closed at - 37.63 U.S. dollars per barrel, and the price of crude oil closed at 18.27 U.S. dollars per barrel on Friday, down about 300% compared with its current low. But the price is still above $20 in June. The global benchmark Brent crude oil trading price is still trading at more than $25.

WTI contracts in May and June present amazing price difference, source: tradingview

As the novel coronavirus pneumonia epidemic is spreading all over the world, countries all over the world have to suspend their economic activities to cope with it. Novel coronavirus pneumonia and Russias recent cut agreements are not enough to cope with the sharp spike in demand for the global spread of the new crown pneumonia epidemic, and the US crude oil production has never been implemented in the past 50 years or has been reduced by quota production, resulting in oil remaining.

Meanwhile, U.S. inventory soared to a record high, and the difficulty of running out of oil storage facilities in the summer made the market lose confidence in crude oil prices in recent months.

According to data from the US Department of energy, the storage capacity of oil tanks in Cushing, Oklahoma alone is now 69%, up from 49% four weeks ago, and the US oil storage facilities are rapidly filling up. In this case, crude oil producers can only reduce production volume in the next few months and crude oil prices in recent months, reduce inventory and reduce production costs.

In addition, the delivery date of crude oil futures in May is approaching, and when the futures contract moves to another month, the price usually jumps short.

Is the main reason for moving warehouse and changing month?

Why is the fluctuation of futures so exaggerated?

Crude oil futures price is calculated on a monthly basis, and the transactions in the near month will be settled at the end of each month. In the early morning of April 22, Beijing time, the US crude oil may futures agreement will expire.

Some investors who buy paper crude oil (i.e. crude oil futures, rather than crude oil) will close their positions in May futures in advance to prevent excessive loss of water rise of paper crude oil after the expiration of the agreement (i.e. holding additional funds paid by the same amount of crude oil).

In addition, some analysts believe that some crude oil buyers in the market deliberately lower the price of crude oil futures in May and bargain for crude oil.

In fact, the daily trading of crude oil futures is in the financial sense, and there is no physical delivery involved. However, if both parties fail to reach an over-the-counter trading agreement before the expiration of the contract, all contracts that remain unsettled after the expiration must be settled in the form of physical delivery of oil.

At this time, the crude oil waiting to be delivered will be transported to the Oklahoma storage center through pipelines connecting Canada, the Midwest of the United States, West Texas and the Gulf Coast. The problem is that crude oil stocks have soared in recent years, so it has become a difficult thing to find oil storage space.

For dealers, if the may long contract is not balanced, it means that they will receive spot oil and only have a few days to tell the seller how to receive the goods. At this time, it is impossible to find oil storage space.

May contracts have become a hot potato for pure virtual traders.

The market expects crude oil futures prices to pick up in May after Tuesdays forced trading.

(function(){(window.slotbydup=window.slotbydup||[]).push({id:u5811557,container:ssp_5811557,async:true});})(); Another problem for traders is that the current main contract in June will expire on May 19. If the crude oil market still fails to improve, the traders who hold the contract will again face the dilemma of high cost transfer and physical delivery. Helima Croft, global chief commodity strategy analyst at RBCC capital, said that at present, there are many crude oil that refineries dont need at all at sea. We dont see any favorable factors for the recovery of crude oil market in the short term. We still have a pessimistic view on the subsequent crude oil contracts. Last week, IEA and OPEC, the two major authoritative organizations, issued monthly market reports respectively, saying that the global energy demand will continue to deteriorate significantly in the second quarter, of which April may be the worst month in oil history. Relevant recommendations Saudi Aramco once again postpones the release of crude oil export price in May OPEC: plans to reduce production by 10 million barrels per day in May and June Trump: the United States will buy 75 million barrels of crude oil to strengthen strategic reserves source: Daily Economic News Author: Lu Xiangyong editor in charge: Han jiapeng_nn9841

Another problem for traders is that the current main contract in June will expire on May 19. If the crude oil market still fails to improve, the traders who hold the contract will again face the dilemma of high cost transfer and physical delivery.

Helima Croft, global chief commodity strategy analyst at RBCC capital, said that at present, there are many crude oil that refineries dont need at all at sea. We dont see any favorable factors for the recovery of crude oil market in the short term. We still have a pessimistic view on the subsequent crude oil contracts.

Last week, IEA and OPEC, the two major authoritative organizations, issued monthly market reports respectively, saying that the global energy demand will continue to deteriorate significantly in the second quarter, of which April may be the worst month in oil history.