WTI put options for June trade at negative price


  • WTI puts traded at a negative strike for the first time on record. 
  • Surplus oil is filling up storage capacities across the globe. 
  • OPEC+ output cut deal is set to take effect from May 1.

Put options on West Texas Intermediate (WTI) oil expiring in June traded at a negative price on Monday, according to NYMEX data, as noted by Javier Blas, the chief energy correspondent at Bloomberg News. 

The derivatives exchange traded 13 put options contract at a strike price of -50. WTI options traded at a negative strike for the first time on record. A put option gives the buyer the right but not the obligation to sell the underlying asset at a predetermined price on or before a specific date. Meanwhile, a call option gives the holder the right to buy. 

A week ago, the now-expired May futures contract fell by more than $35 below zero, as sellers paid buyers to get off oil from their hands. 

WTI futures cratered as much as 30% on Monday after the United States Oil Fund LP, the biggest oil exchange-traded fund, said it will take out all the money invested in the front-month June WTI oil contract.

Oil prices have come under pressure in recent weeks as the coronavirus-led demand destruction triggered oversupply concerns. The storage tanks across the globe are filling up fast. For instance, South Korea, which holds the fourth-biggest commercial storage capacity in Asia, recently ran out of onshore space, according to rigzone.com. 

Meanwhile, Singapore's coastline is becoming more congested as the number of oil-laden tankers awaiting a potential buyer continues to rise with each passing day. On a global level, the swelling glut is set to test storage capacity limits in as little as three weeks, according to Goldman Sachs. 

The OPEC+, a group of major producers led by Russia and Saudi Arabia, recently agreed to cut the output by 9.7 million barrels per day, starting from May 1. Both the US and Saudi Arabia have reportedly begun reducing the output ahead of the start of the OPEC+ cuts. 

However, the output cuts would be able to put a floor under prices only if the governments across the globe ease restrictions put in place to contain the virus outbreak and re-open their respective economies. 

Chart source: CME, Javier Blas

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