WTI contract expiring on Tuesday plunges into negative territory

US crude oil front-month contract falls into negative territory.
Brent erases around 7% on the day to trade around mid-$28s.
S&P 500 Energy Index falls more than 3%.

Eren Sengezer FXStreet

Crude oil prices remain under heavy selling pressure at the start of the week with the May (front-month) West Texas Intermediate (WTI) contract, which is physical oil that will be delivered by Tuesday, plunging below $0. This essentially means that oil producers will pay for oil to be taken off their hands. Meanwhile, June WTI contract is down around 10% to trade near $22.50.

The lack of storage space and falling demand amid coronavirus-related lockdowns makes it nearly impossible for actual physical barrels of crude oil to find buyers. However, the wide divergence seen between May and June contracts suggests that investors are pricing a rebound in the second half of the year.

Meanwhile, the barrel of Brent, which has already rolled to June contract, is down 7% on the day at $28.50 to confirm that the fall witnessed in WTI prices is reflecting the extreme conditions in the physical oil market.

Market reaction

The S&P 500 Energy Index is down 3.35% on the day as the worst-performing major sector. Occidental Petroleum Corp (OXY) shares are erasing 8.55% to trade at $12.45.

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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