It was a move of epic proportions in the front month WTI Crude futures, the significance of which is not really known of yet, but was incredible to watch.
In what was a relatively normal day in the stocks, spreads, held steady for S&P/Nasdaq and S&P/Dow, but in the Energy space, WTI futures which saw the expiry of the front month continued to trade under pressure.
May WTI futures were already down 40% on the day in the morning, continued lower as positions had to be either rolled over, or closed out, or otherwise risk taking delivery. It appeared that traders were waiting for the May-June spread to narrow as the roll was a massive $7 over the past few days, but this did not pan out, and so due to lack of liquidity, and the number of contracts that had to be traded out we saw sharp decline in futures, to the point where they went below zero, and to a low of -$37 and change before rebound to trade just above $1. So in theory this meant if the futures closed around the low, you would take delivery of 1K barrels of oil as well as be paid $37K for the privilege.
Due to the massive over supply and the lack of storage options, with the storage costs at all time highs, being left holding till expiry was the last thing anyone wanted to do, to the point it went to this extreme to get out.
Longer term, it is a real tell of the current environment. We have what would have been classified as a very low risk probability of a pandemic which has paralyzed demand, on top of which a supply war between Saudi Arabia and Russia, which has flooded the market with supply, to the point where they cannot give it away for free.
The June/July spread currently is around -$5.50, remaining in contango, infact much of the front part of the curve is in contango representing the fear of supressed demand and huge storage costs.
I wouldn't be surprised if we drop to below $10/bbl again, although I cant see the price action to be as outlandish as it was today.
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