Question

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

2.What were the main reasons for this fall into the negative realm? Critically discuss.

Answer 1

The collapse of the Futures Oil Market, which fell into the negative realm in May 2020.   This May 2020 oil future price settled around Minus $37 price. It was a complete collapse of oil price. This is the first time in history Oil price settled in negative zone. It happens due to there was to Bid for oil contract even at sub-zero price also. As no buyers on board price keep on falling and settled in around Minus $37 price.

Main reasons for this fall into the negative realm :

• Due to covid-19 crisis and lockdown by several countries worldwide demand for crude oil fell substantially.
• At the same time, Major Oil Producing countries OPEC crisis started. As two of the major partner of OPEC UAE and Russia supplier of Crude oil fails to negotiate Supply/production cut of crude oil in light of lower demand. Instead of cutting production they fall into the trap of further production.   Resulting market flooded with Crude Oil while demand is almost Nil.
• As major oil-importing countries already filled their strategic reserve not able to purchase further oil resulting no bid in the market. And price falls in Sub zero level at closing of contract.