Question

Review and discuss the collapse of the Futures Oil Market, which fell into the negative realm in May 2020.

Answer 1

Oil futures has recently fell into the negative territory and that could be attributed to factors like uncertainty in oil pricing and collapse of the demand of the commodity due to coronavirus concerns and lack of the physical movement so it can be said that there was a huge offloading of contracts in the future markets that lead to oil futures slipping down into the negative territory.

Oil futures are generally a commodity market futures and they are reflecting the movement of oil in the overall Global space and it can be advocated that all prices has slipped down to the negative territory because there was a lack of pricing decisions in OPEC as various countries were not able to determine an uniform prices for this commodity and there was a coronavirus concern due to which the physical movement of oil has been completely banned across countries and it lead to slipping down of prices and negative sentiments taking over the commodities market and it was completely reflected into the prices of the oil, which slipped into the negative territory because people were desperately offloading their contracts as there was not much demand for all contracts and it can also be attributed to shortage of storage facility for this commodity due to which it fell into the negative territory.

commodity markets are generally highly volatile in nature and they are very quick to discount any kind of global events, so oil futures were very quick to discount the lack of pricing decisions by OPEC and coronavirus concern and they were very futuristic in discounting them and that led to an overreaction by the future market participants through squaring off their long positions and it lead to slipping down of oil into the negative territory.