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The negative U.S. oil prices were a preview of an extreme situation and do not reflect the real price, a global commodity expert said, as U.S. oil futures plunged below zero U.S. dollars a barrel on Monday for the first time in history.
"The extreme prices yesterday had great relations to futures speculation, not just because of global supply-demand imbalance, so they didn't fully represent the actual oil price situation," Li Li, China head of analytics with ICIS, a global commodity intelligence provider, told CGTN.
The May futures contract for West Texas International (WTI), the benchmark for U.S. crude oil prices, crashed 300 percent from 17.85 U.S. dollars a barrel to minus 37.63 U.S. dollars a barrel on Monday, the worst level since 1983.
"Such an extreme case is attributed to the tight positions of the expiring contract and the amplification of programmatic trading," Li explained, adding that a collapse in oil demand from pandemic-driven lockdowns and storage facilities nearing their capacities also played a role.
The U.S. oil futures for June fell more than 12 percent to 21.87 U.S. dollars. Brent, the global benchmark, slumped 3.9 percent to just below 27 U.S. dollars a barrel.
"The prices for June futures are still above 20 U.S. dollars a barrel, and this is the relatively real price," Li said.
Supply and demand imbalance
Monday's plunge is a troubling sign of an unprecedented global supply and demand imbalance in the first half of the year, as supply of crude oil has been far above demand since the coronavirus pandemic halted traveling and curbed economic activities.
A deal announced last week between OPEC and its peers would have slashed output by about 10 million barrels a day from May. However, "Since the deal was reached, it was believed that the record output cuts were still far from enough to balance the market," Li told CGTN.
The IEA forecasted that the loss of global oil demand in April and May will be 29 million barrels and 26 million barrels per day respectively. "Even if the reduction is implemented, it will only offset less than half of the loss in demand," Li said.
Singapore-based Hin Leong Trading (Pte) Ltd, one of the largest fuel traders in Asia and an operator of a major tanker fleet, has admitted to 800 million U.S. dollars in undisclosed losses and filed for bankruptcy protection on Monday.
"I don't think there would be a banking crisis, as there have been no cases similar or related to Hin Leong till now," Li told CGTN, when asked whether fuel traders' bankruptcy will lead to a banking crisis or even a financial crisis.
"In the coming months, the global crude oil market will continue to ease, so the situation will improve when the June contract expires," Li said.
U.S. oil prices crash below $0 a barrel, worst plunge since 1983
