An extreme situation has developed in the U.S. crude oil futures markets, as the current front-month May contract, due to expire Tuesday, has ...
An extreme situation has developed in the U.S. crude oil futures markets, as the current front-month May contract, due to expire Tuesday, has dropped by a whopping 36per cent, opening up the widest gap between it and the next contract ever, at nearly US$11 a barrel.
That gigantic spread is the result of the shocking fall in demand due to the coronavirus pandemic and glut of global crude supply hitting the markets simultaneously. While oil-producing nations have inked a deal to cut output, those cuts won't come quickly enough to avoid a massive clog in the next couple of weeks.
When a futures contract expires, traders have to decide whether to take delivery or roll their positions into an upcoming contract. Usually this process is relatively uncomplicated, but the May contract's decline reflects worries about an inordinate level of supply hitting the markets - with shipments out of OPEC nations like Saudi Arabia booked in March set to cause a glut.
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