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WTI oil price falls below zero linked to peculiarities of trading — experts

The price for West Texas Intermediate (WTI) oil futures with delivery in May crashed below zero on Monday, but, according to experts, this is a short-term situation, caused by peculiarities of stock exchange trading.

As of 21:50 Moscow time on Monday, WTI oil futures for May 2020 traded at below zero at London's ICE stock exchange, reaching -$40.32 per barrel at their lowest. WTI futures for June dropped to $20.85 per barrel (-16.7%), Brent - to $25.86 per barrel (-7.9%).

"This is a classical 'corner' - a stock exchange scenario when you urgently need to liquidate an adverse position, which you cannot deliver, and you have to liquidate it at any price. You should either get a contract or get a delivery, but a delivery is impossible, because the storage is already full, so you must liquidate it," analyst of the Russian investment group Finam Alexei Kalachev told TASS, adding that currently some market players generate enormous profit while others sustain even greater losses.

WTI oil is extracted in Texas and is used mainly for producing gasoline. It usually trades lower than the Brent crude, which serves as a benchmark for the entire oil market, including Russia’s Urals. This is related to the fact that, unlike Brent, WTI futures are directly linked with physical deliveries.

Experts said that the sharp decline in prices is related to the fact that trading in May WTI futures will end on April 21. At the same time, they add that Monday’s plunge to historic lows is also caused by the unfavorable situation on the market.
Brent and Urals

Analysts believe that the fall in Brent oil prices to below $10 per barrel, similar to the plunge of WTI futures for delivery in May, is possible, but it will not last long.

"The situation on the physical market remains very difficult, especially as long as the OPEC+ deal has not yet entered force, therefore, a short period of Brent and Urals falling below $10 cannot be ruled out," Senior Director at Fitch Ratings Dmitry Marinchenko told TASS.

Meanwhile, Raiffeisenbank’s analyst Andrei Polishchuk says that although it’s hard to make any predictions, Brent oil prices may repeat the WTI scenario.

"The price might also fall to zero, is it is a short-term element of market speculation," he said, adding that under the current circumstances, the price leaps on the oil market are caused not only by the looming expiration, but also by the general situation on the oil market.

Finam analyst Alexei Kalachev, however, has a different opinion. Although he admits that a scenario of this kind is generally possible for Brent oil, but sees no reason for it to happen at the moment.

"This is extremely unlikely," he said.


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