June 21, 2021

West Texas barrel falls to -40 dollars in unprecedented contraction

Specifically, the price of WTI futures contracts with delivery in May has reached a price of -40.08 dollars per barrel, compared to +18.27 dollars registered at the close of Friday.

In contrast, the June WTI oil futures price was more stable during the day. The drop this Monday has been about 13%, to around $ 21.78 a barrel.

In this way, the US oil markets have experienced what is known as “contango”, which occurs when the future price is quoted at a higher price than the current one.

Falling demand for the Covid-19 coronavirus, coupled with low crude prices in recent months, has caused storage to become scarce. This, together with the expiration of the trading period of futures contracts maturing in May on Tuesday, has led to the bearish day, in which records have been broken consecutively.

Oil has fallen to lows since 1999 first, but then continued to drop to never seen prices from the 1973 oil crisis, sparked after the Yom Kippur war. Finally, crude oil has entered negative territory and has continued to deepen its fall.

Since WTI futures contracts were traded, something that started in 1983, the futures price has never dropped below $ 10 before.

“May WTI futures are experiencing massive sales as they expire tomorrow. All investors who do not want physical delivery need to sell the May contract before its expiration. Also, there are no physical buyers for this contract as the capabilities of storage in the US has reached its maximum “, explained the manager of Vontobel AM, Michel Salden.

Last week, the International Energy Agency (IEA) described 2020 as “the worst year in history for oil” and referred to this month as “black April”, also warning that excess supply would put It tests the world’s capacity to store crude oil, with the risk that saturation in some fields forces production to stop.

In turn, the Organization of the Petroleum Exporting Countries (OPEC) forecast that demand for crude oil would drop by around 20 million barrels per day in April. In the year as a whole, demand will decrease by 6.91 million barrels per day.


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