Just when you thought markets couldn’t get any crazier

So, this happened in US markets overnight.

Image credit: Yahoo Finance

That’s the one day chart for WTI Crude Oil front-month May 2020 futures contract. And yes, it went as low as US$ -37.63 during intra-day trading.

Negative thirty seven dollars and sixty three cents.

Wow, just wow.

We all know that Covid-19 global lockdowns have brought travel, transport and economic activity to a standstill, and those tracking financial news know that oil storage capacity has been stretched. But this is just crazy.

Oil traders are essentially paying buyers of WTI crude oil for May physical delivery to take inventory off their hands. Which basically means that WTI storage capacity is currently maxed out.

That’s how much global oil demand has dropped off the cliff, and we can better appreciate the change in magnitude by zooming out and looking at the one year chart.

Image credit: Yahoo Finance

The May contract expires today and the front-month rolls over to the June contract, which also looks bad, but at least it’s not crazy (yet). Likewise for the rest of the WTI futures term structure out to October 2021.

Image credit: Yahoo Finance

It would be interesting to see what happens in a month’s time, as we approach the expiry of the June 2020 contract. The demand situation is unlikely to improve much by then, but you’d assume that oil producers would address the supply and storage situation to avoid another bout of negative prices.

We live in interesting times indeed.

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