About two weeks ago, the price of WTI futures crashed to a record all-time low well below zero, at -$37 dollars. Those were the contracts expiring in May, which are now done for. However, after the unprecedented drop, market participants quickly turned their eyes to the next contract - June futures, which are now the next volatile target.
The crash of oil prices two weeks ago was caused by the extreme oversupply on the market, and more specifically the fact that US oil facilities are running out of storage room for the oil they produce. The oil market has been oversupplied since around 2014, but the issue has gotten much worse this year due to the coronavirus pandemic, which caused a dramatic decrease in demand.
All this time OPEC and its allies have been trying to limit oil production to curb the oversupply on the markets, but the United States never joined them, and instead kept pumping more and more oil. In 2020 not only did demand drop to record lows (thanks to a worldwide halt in industry and travel), but OPEC+ abandoned their plan as well and increased production levels. Thus, the market remains heavily saturated with oil that is simply piling up at present.
Unless something is done to address the cause of the issue, if all market conditions remain the same, then oil futures prices will continue to crash. Nevertheless, it appears that the situation is changing in a positive direction for oil.
The United States reported lower oil output for the first time in a long while. Moreover, the recent production cuts agreed by OPEC+ came into effect as well. And with hopes that many economies will reopen in May, causing an increase in demand for oil, oil prices have been recovering this week.
The WTI brand today reached $19.18 (this is the June contract), while the Brent is up at $26.70 (July contract). However, this recovery is quite modest compared to the loss of 70% and 60% of the price for these two types of oil, respectively, since the beginning of the year.
Though this week oil has been on the rise, it remains a highly volatile asset, susceptible to any kind of news regarding the oil market.
