Biggest Ever Meltdown In Crude Oil Prices Explained
A measure of oil volatility skyrocketed to more than 400% on Monday when crude oil went below to $10 a barrel and then to zero and then slipped into the land of negative. And it is the first time that crude crashed into negative territory.
Monday’s wild market action
Brimming storage tanks signal extreme disconnect between supply and demand due to coronavirus-led economic slowdown. The present demand for crude oil is at a standstill. Here’re three actions that describe the market condition.
The May contract of West Texas Intermediate crude’s front-month contract closed at a more than $50-a-barrel discount to the June contract. And it is the biggest discount on record. It could be due to the traders rushing to sell the May contract ahead of its expiration on Tuesday.
Tariq Zahir, a commodity fund manager at Tyche Capital Advisors LLC commented on the falling crude oil prices to negative zone. He said that oil prices in their opinion had nowhere to go but lower from there on the June contract. He further maintained that the demand wasn’t coming back anytime soon. They would have a massive glut to work off for months to come.
The United States Oil Fund, that is the biggest exchange-traded fund tracking crude, witnessed enhanced activity after the Monday market crash. Last week, investors poured more than $1.6 billion into the fund and exchanged over $3 billion on Monday. It was the highest traded value since the inception of the fund.