Futures contracts, in part, responsible for the historic fall in oil

NEW YORK | The price of a barrel of american crude oil quoted at New York for may delivery slumped on Monday, closing at -37,63 $, a fall exacerbated by the impending expiration of a futures contract, which has pushed investors to offload at any price.

It has also gone down, the same barrel for delivery in June was $ 20,43 $. A difference of this size between these two futures contracts is explained by the bets of market players and speculators. When they buy one of these contracts, they commit to deliver it physically at a price and on a date determined in advance.

The contract for may, the West Texas Intermediate (WTI) crude ending on Tuesday at the closing, the investors with barrels are faced with a dilemma : sell it physically or on the store to have it delivered later.

However, the us reserves of oil have increased dramatically in the last few weeks, making storage more difficult and more expensive.

In its latest weekly report, the u.s. Agency for Energy information (EIA) reported an increase of 19.2 million barrels of crude in a single week, the biggest weekly increase since these statistics are published.

The firm Rystad Energy has estimated on Monday that the storage capacity remaining was 21 million barrels at Cushing, the city of Oklahoma where are stored the barrels serving as the reference to WTI.

In the Face of this new situation, caused by a collapse of demand resulting from the stoppage of transport and economic activity, a result of the pandemic of sars coronavirus, the barrels for delivery next month have lost their entire value and investors wishing to get rid of with no choice other than to put the hand in the pocket to find a buyer.

“Actors of size average pay for the “buyers” to sell their volumes of oil, the physical limits of storage being on the point to be reached. And they pay dearly !”, explains Louis Dickson of Rystad Energy.

For the specialist, this means that the “closures” wells, “or even bankruptcy, may now be cheaper for some producers to pay tens of millions of $to get rid of what they produce.”

On the other hand, those who prefer or who have the means to sell later by storing their black gold are betting on the fact that the course will have rebounded by then. They consider that the worldwide consumption of crude oil and refined products, will resume at the same time as the economic activity.

This situation results in a phenomenon of “contango,” or report, where the price of a futures contract increases as the maturity is far away in time.

Thus, the contract of WTI for delivery in July finished at 26,28 $ and the one for delivery in August at 28,51 $.

Another indicator that has led some analysts to overestimate the collapse of the WTI Tuesday : the barrel of Brent of the North sea, of which the most-active contract expires in June, has finished in 25,57 $.

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