The May futures contract fell by 300%, which was the biggest decline recorded in history (since 1983).
The huge gap between the expiring May contract and the upcoming June contract increased to more than $ 22 per barrel. Since the May contract expires on Tuesday, buyers are obliged to simply take these oil barrels...
Futures traders can easily move from an expiring contract to the next. However, there are currently no buyers for the May contract to accept the supply of crude oil. Thus, on Monday, as the May contracts were dropped, CLc1 collapsed.
It fell by $ 19.79 and amounted to $ 1.51. CLc1 traded about 141,000 contracts. The June CLc2 contract, on the other hand, fell by 15% ($ 3.79) and amounted to $ 21.28 per barrel. It traded more than 920,000 contracts.
"For many investors or people using these hedging contracts, this is really a big pain," Edward Moya, market analyst at OANDA New York, said. "There is no place to put it - we do not have enough space to store oil," he added.
When a futures contract expires, traders are forced to decide whether to close positions or move to the next contract. The process is usually simple, but this current fall of the May contract shows that this glut of supplies has incredibly hit the markets. Moreover, the pre-agreed deliveries from OPEC countries, Saudi Arabia in particular, can cause an unrealistic oversupply.
Major oil-producing countries have agreed to reduce production, however, it is already too late to avoid this massive oil glut.
Available storage space is also decreasing in Cushing, Oklahoma. According to the US Department of Energy, a month ago, the storage center was only half full. Now, it's about 69% full!
"It's clear that Cushing will fill up over the next few months," said Andrew Lipow of Lipow Oil Associates. "Since producers are lagging behind in reducing production, large quantities of crude oil is looking for a place to travel around the world."
Although major oil producers have agreed to cut production, it will only begin in May. Saudi Arabia still has not reduced oil supplies, including deliveries to the US. As a result, oil continues to fall.
Global oil consumption is approximately 100 million barrels per day. Supplies are generally consistent with this. However, global consumption has fallen by about 30%, while production cuts are still very small.
