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The oil price is collapsing negative for the first time in history as demand dries up

The price of US oil collapsed negatively for the first time in history on Monday, as demand dries up and producers effectively pay buyers to relieve barrels.

In the latest, unprecedented number that emerged from the economic coma caused by the coronavirus pandemic, the costs of having a barrel of American oil delivered to $ 37.63 negative in May plunged. It was about $ 60 at the beginning of the year.

Traders are still paying $ 20.43 for the delivery of a barrel of US oil in June, which analysts say is closer to the “real” oil price.

For Oklahoma’s main energy hub, barrel prices for November ended at $ 31.66, and while they are still low, the uptick is an indication that experts believe the economy is on track to recover by then.

Oil is traded at the future price. The May futures contract ends Tuesday, exacerbating volatility.

By Monday evening, US oil prices had risen above zero again.

An idle oil pump in Signal Hill, California, Monday. Oil prices traded in negative territory for the first time because the spread of COVID-19 affects global demand

An idle oil pump in Signal Hill, California, Monday. Oil prices traded in negative territory for the first time because the spread of COVID-19 affects global demand

US crude futures turned negative for the first time in history on Monday, ending the day with a staggering minus $ 37.63 a barrel

US crude futures turned negative for the first time in history on Monday, ending the day with a staggering minus $ 37.63 a barrel

US crude futures turned negative for the first time in history on Monday, ending the day with a staggering minus $ 37.63 a barrel

Why did the price of oil plummet and what happens when a futures contract expires?

When a futures contract expires, traders must decide whether to accept delivery or convert their positions into an upcoming contract.

Usually this process is relatively straightforward, but the contract decline in May reflects concerns that too much supply could hit the markets, with shipments from OPEC countries such as Saudi Arabia booked in March would cause oversupply.

Available storage space is rapidly declining at the hub in Cushing, Oklahoma, where the physical delivery of US oil barrels purchased on the futures market is taking place. Four weeks ago, the storage hub was half full – now it’s 69% full, according to data from the U.S. Energy Department.

Traders fled the expiring US oil futures contract on Monday on insane Monday, pushing the contract into negative territory for the first time in history as hardly any buyers are willing to accept oil barrels as there is no place is to put the crude oil.

Monday’s sharp decline is due to the May futures contract that closes Tuesday, when trade contracts expire and the first supply they can buy is before June.

Traders fled the expiring US oil futures contract on Monday on insane Monday, pushing the contract into negative territory for the first time in history as hardly any buyers are willing to accept oil barrels as there is no place is to put the crude oil.

They are running out of places to store crude to be delivered next month with storage tanks nearly full amid a collapse in demand as factories, cars and planes are inactive all over the world.

Tanks on a major Oklahoma energy hub could reach their limits within three weeks, said Chris Midgley, chief analysis officer at S&P Global Platts.

Therefore, traders are willing to pay others to take that oil off their hands for delivery in May, as long as they take the burden of figuring out where to keep it.

“Almost by definition, crude has never fallen more than 100%, and that’s what happened today,” said Dave Ernsberger, global head of prices and market insight at S&P Global Platts.

“I don’t think any of us can really believe what we saw today,” he said. “This kind of rewrites the economy of the oil trade.”

Brent crude oil, the international standard, fell nearly 9% to $ 25.57 a barrel.

The dip in oil saw energy supplies in the S&P 500 drop 3.7%, the latest in a bleak 2020 bringing their prices nearly in half.

“The tall people desperately want to leave,” said Phil Verleger, an experienced oil economist and independent consultant. “If you don’t have storage space, get out.”

An oil drilling platform is docked near a refinery in Pascagoula, Mississippi. In the latest, never-before-seen number that emerged from the economic coma caused by the coronavirus pandemic, the cost of having a barrel of American oil delivered collapsed in May at $ 37.63

An oil drilling platform is docked near a refinery in Pascagoula, Mississippi. In the latest, never-before-seen number that emerged from the economic coma caused by the coronavirus pandemic, the cost of having a barrel of American oil delivered collapsed in May at $ 37.63

An oil drilling platform is docked near a refinery in Pascagoula, Mississippi. In the latest, never-before-seen number that emerged from the economic coma caused by the coronavirus pandemic, the cost of having a barrel of US oil delivered plummeted to $ 37.63 in May

Oil prices on Monday plunged to their lowest since 1999. The above chart is mapped by Statista

Oil prices on Monday plunged to their lowest since 1999. The above chart is mapped by Statista

Oil prices on Monday plunged to their lowest since 1999. The graph above is charted by Statista

Major oil-producing countries have agreed to cut production and global oil companies are cutting production, but those savings don’t start until May.

Saudi Arabia is stepping up oil supplies, including large shipments to the United States.

Global oil consumption is around 100 million barrels a day, and supply generally continues to match that. But consumption has fallen by about 30% worldwide, and cuts so far are much less.

The Dow drops more than 500 points amid the coronavirus pandemic

Stock and Treasury returns also fell on Wall Street, with the S&P 500 falling 1.8%.

The S&P 500 decreased by 51.40 points to 2,823.16. The Dow Jones Industrial Average lost 592.05 points, or 2.4%, to 23,650.44, and the Nasdaq fell 89.41 or 1% to 8,560.73.

The losses contributed to some of the major earnings indices since the end of March, recently driven by investors anticipating the possible reopening of companies as infections are easing in severely affected areas. Pessimists have called the rally exaggerated, pointing to the severe economic pain that is engulfing the world and continued uncertainty about how long it will take.

“The government can indicate what it wants to encourage people to get out and do things,” said Willie Delwiche, investment strategist at Baird. Whether or not broad sections of society do or not remains to be seen. It will be necessary to see people getting out and doing things again. That’s the necessary positive development, not just getting things open. ‘

More profits from companies that are winners in the new home economy helped mitigate market losses. Netflix jumped 3.4% to set a new record while people are locked up at home to fill their time. Amazon added 0.8%.

As a sign of continued caution in the market, government bond yields remained extremely low. The return on the 10-year treasury fell from 0.65% at the end of Friday to 0.62%.

Shares have recently been on a general upward trend and the S&P 500 just closed its first back-to-back weekly profit since the market started selling in February. Promises of massive support for the economy and markets by the Federal Reserve and the U.S. government fueled the rally, pushing the S&P 500 up a whopping 28.5% from a low on March 23.

More recently, countries around the world have carefully imposed restrictions on shutting down companies to slow down the spread of the virus.

But health experts warn that the pandemic is far from over and that new flares may emerge if governments rush to restore “normal” life prematurely. The S&P 500 remains nearly 17% below its record high, as millions more US workers apply for unemployment every week amid shutdowns.

Many analysts also warn that part of the recent stock rally stems from the expectation that the economy will turn rapidly and recover sharply once economic quarantines are lifted. They may turn out to be too optimistic.

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