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Crude Prices Went Below Zero !
It is so hard to imagine a physical commodity, in fact an international essential commodity would go below zero pricing! That means it has become a thrash and wanted by nobody. This is a phenomena that is not seen before but actually has happened. Read on.
On the 20 April, the Crude Futures trading in U.S. Chicago Mercantile Exchange went down to minus USD37 /barrel just one before the contract expired. This is the first time in mankind history that such a global commodity experienced a thrown-off by all traders and witnessed by the unbelievable audience. We are the audience of course!
With this precedence set into Futures industry, will it happen again in future? We reckon it might happen again unless the Exchange set a new rule to halt all trading activity once the prices come to zero benchmark.
When the May Futures contract traded at the negative region, it meant the global supply glut has been enlarging and the seller just want to pass the stock to next buyer including the cost of storage. Nevertheless, we feel that most selling pressure came from speculators who have been refusing to cut loss and waited until the final day before expiration. According to the contract, buyer has to take delivery if the position is held until the final trading day for settlement. Hence, this trigger a panic selling and pushed its way through a negative price region on Monday session.
After the May Futures contract settled for delivery at USD10.01 /barrel on the following day, the active month rolled forward to June month for regular trading. In coming May, we forecast there could a similar situation rising again since many retail traders simply don't believe the Crude commodity has become a redundant instrument in the world.
However, seeing such a sharp plunge in Crude prices, the sole winner should be Saudi Arabia that we have written a snippet few weeks ago. When everyone else stops producing new Crude now due to the low selling prices, only those countries with existing storage will have the "muscles" to continue offer the commodity to worldwide buyers. Therefore, all other oil producing countries will soon exhaust their reserve and Saudi will be the only one left with sales income generated from selling old stock.
Trade well in May and be cautious when you see the Crude prices approaches zero benchmark again. Exercise your risk control.
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