Crude oil price (June contracts) down 22% on the day as historic selloff continues

on Apr 21, 2020
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  • For the first time in history, the May oil contract settled at negative $37.63 per barrel yesterday
  • The June contract trades around 22% lower today amid fears of looming global recession crushing demand
  • “Anybody who thinks oil has found a floor is playing with fire," warns an analyst

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After a historic day in which crude oil prices (May future contracts) were pushed into the negative territory, the selloff in oil continues as the price of “black gold” – the June contract – trades around the $16 mark, around 22% lower today. 

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Fundamental analysis: Catching a falling knife

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Crude oil price was pushed yesterday into negative territory for the first time in history on collapsing demand and storages full of oil. The May contract, which expires today, settled at negative $37.63 per barrel yesterday.

This means that companies are paying traders to take the oil off their hands as their storages are already full. 

“As the smoke clears, that’s the number one question of the markets today — anyone who thinks that the technicals are behind the pricing yesterday is going to completely miss the point,” said Dave Ernsberger, global head of commodities pricing for S&P Global Platts.

Traders have already turned their attention to the June oil contract, which currently trades 21% negative on the day. 

“That storage is just as full for June, if not fuller, than it was for May. Already Cushing is 70% or 80% full, and that technically means it’s closed for business. So we could easily see this play into the June contract pretty soon,” said Ernsberger. 

Today is the last day to trade May contracts, but they are attracting less interest as their delivery date is set for May, when countries around the world are likely to remain in full lockdown mode. 

The May contract trades at negative $4.00 currently. 

“There’s an eight-week danger zone here between today and sometime in June — where between now and then, anybody who thinks oil has found a floor is playing with fire and trying to catch the famous falling knife, because it’s almost impossible to call,” warned Ernsberger.

Technical analysis: Aggressive selling continues

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Crude oil prices (June contracts) are trading around the $16 mark after another round of selling during Asian session pushed the price action below the $20 handle. Today’s low is $11.79, which means the price traded nearly 50% lower at one point this morning.

Crude oil price weekly chart (TradingView)

The $21 level is expected now to act as an intraday resistance in case the oil catches a surprising bid. Other than that, the risk is clearly to the downside as the price action already trades below almost all technical indicators. As it is the case with the oil May contract, the June contract can also trade into the negative territory. 

Summary

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The oil futures contract for May, which expires today, slid into the negative territory for the first time in history yesterday to settle at negative $37.63 per barrel. Traders have now turned their attention towards the June contract, which has also been placed under the extensive selling pressure today. 

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