Drowning in oil

Drowning in oil

On Monday, just a day before the May contract for West Texas Intermediate crude was due to expire, US oil prices plunged into negative territory for the first time in history. The move broke bank risk desks, as traditional options models assumed zero was as low as prices could go. It also broke exchange traded funds (ETFs) that invest in oil and no doubt a few hedge funds.  It was seen by many as nothing more than a rollover issue, as the May contract had become so illiquid, and trading desks had long abandoned it for June. But as soon as the June contract became the ‘front month’ it too tumbled and Brent, the international benchmark, has just slumped to a 21-year low. There is trouble in the oil market that goes well beyond the technical aspects of futures trading.

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