Planes aren’t flying, people aren’t driving, storage space is running out. Crude oil for May 2020 delivery fell 305.97 percent to -$37.63 on April 20, 2020 in a move that took most of the markets participants by surprise so much large and sudden the move was intraday.

While the spot price of oil turns negative given that storing oil is currently costlier than just giving it away with a bonus, it doesn’t mean the price of oil will remain at such levels for a long time given that the May contract expires just a day later on April 21, 2020.

However, in addition to the epidemic of coronavirus Covid-19 that shut down many economies in an unprecedented sanitary move, this first time ever negative oil price adds more uncertainty to an ocean of uncertainty – this could even constitute what Nassim Nicholas Taleb famously named a Black Swan.

On the more optimistic side of the markets, the number of those who expect a v-shaped recovery could decrease dramatically as the whole system increasingly questions itself and its ability to effectively address the after-effects of the crisis.

On the more pessimistic side of the markets, a growing number of market participants fears that a second crash after March’s could happen anytime, fueled by the crushing of oil price.

In the longer term, a number of analysts speculate that these unusual times could turn into deflation – a general decline in prices for goods and services associated with a contraction in the supply of money and credit – or stagflation – high unemployment associated with slow economic growth and high inflation, two outcomes of a severe economic crisis.

Crude Oil May 2020 Contract via Bloomberg.

Contents published on Cyceon.com do not constitute investment advice.

Newsletter

Read more

More Posts...