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Big news shake financial markets more and more often. This time oil is once again the biggest news maker.
West Texas oil futures expiring on Tuesday turned negative for the first time in history. Negative prices mean that sellers were actually paying buyers to take the stuff off their hands. Such a situation occured because the US economy is on the lockdown and, as a result, there’s so much unused oil that America is running out of places to store it.
Crude oil futures is a futures contract, in which a seller agrees to transfer a specified amount of barrels of oil to a buyer at a specified price on a specific date.
Some market players, such as refinery companies, use futures to ensure that they will have a favorable price fixed for the future. Most traders, however, trade oil futures without waiting until the expiry date. They don't want the actual oil, they just buy and sell oil futures to make money on the price swings. However, if they don’t get out of the position before the due date, they will have oil actually delivered to them.
There are oil futures for every month for years ahead. Trading terminates 3 business day prior to the 25th calendar day of the month prior to the contract month. In April 2020, such day is Tuesday, April 21. Physical delivery for these contracts should take place in May, but as the storage capacities are near the limit, the demand has plunged. Storage is especially scarce in Cushing, Oklahoma, where WTI May-dated futures contracts require futures buyers to take delivery of the oil. Hence, market players just wanted to get rid of these futures. There was a wave of selling and the price of WTI-20K dropped below 0.
Although, the futures market has experienced an impressive move, there's no way this is an apocalypse. We can see that other contracts haven’t collapsed at all. For instance, WTI June prices (WTI-20M) are above $20 a barrel.
Prices for Brent futures fell, but the decline wasn’t dramatic at all and accounted for about 5% on Monday. Unlike WTI, Brent crude can be delivered offshore to a variety of locations, so if there’s a lack of storage in one place, oil will be just moved elsewhere.
All in all, the story will likely keep oil under pressure for a time being. Notice that with FBS you can take advantage of various oil futures, both buying and selling these contracts in the form of CFD.
This week started with the talk of the United States banning Russian oil exports, so XBR/USD saw $130 a barrel. Then the ban became reality. What does it really mean for the market?
Organization of the Petroleum Exporting Countries (OPEC) is scheduled to meet on January 4.
What will happen? Crude oil inventories will be announced at 17:30 MT (GMT+3) on Wednesday, September 29…
Main news that will drive the market in the upcoming week include CB Consumer Confidence Index, Canadian GDP, and US Core PCE Price Index
The Federal Reserve (Fed) will announce its Interest Rate Decision and make a statement about the future monetary policy on Wednesday, September 21, GMT+3. After the higher-than-expected inflation numbers published on September 13, there’s almost no doubt the Federal Reserve will come up with another 75-basis-point rate hike. However, surprised by the CPI numbers, several Fed members announced the possibility of a 100-basis-point rate hike on Wednesday.
Every week we expect many interesting events that can shake the market.
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