Negative Crude Oil Prices Amid Historic Capitulation: Cross Asset Correlation


CAD, AUD, GBP, S&P 500 Analysis & News

  • Historic Oil Collapse as Prices Go Negative
  • Storage Capacity Concerns Weigh on June Contract
  • Commodity Currencies Remain Skewed to the Downside

Negative Oil Prices: Yesterday will mark a historic day that for the first time, crude oil prices were negative. The beginning of Monday’s session saw WTI crude May futures trading just shy of $19, before settling at circa -$38/bbl after the largest one day plummet in history. While the oversupply and demand destruction factors continue to paint a very bleak picture for oil prices, the plunge can largely be explained through technical factors.

May Contract: The current front-month contract is for crude delivered in May, which is due to expire today at 1930BST. Given that WTI futures contracts are settled through physical delivery, buyers of the contract will have to take physical delivery of the oil if no buyers are found before expiry. As such, positions typically roll-over to the next contract, in this case the June contract.

However, with inventories nearing full storage capacity, buyers in the market have been lacking, meaning that speculators are unable to offload their oil with inventories nearing full storage capacity and thus there is thus no place to store physical oil. As such, oil prices are essentially in free-fall with negative oil prices effectively meaning that front-month contract holders are paying someone to take them out of their positions before expiry.

Storage Capacity Filling Up: Of note, the US Department of Energy recently stated that around 55mln barrels of oil had been stored near the Cushing terminal. Keep in mind that with the touted full capacity at 79mln barrels, storage capacity concerns likely to rise next month, the June contract is also expected to come under significant pressure, which has been the case in today’s session.

Commodity Currencies: Falling oil prices favours CAD downside against the Japanese Yen and US Dollar.

Net Oil Exporters: These currencies tend to weaken when oil prices drop: CAD, NOK, MXN, RUB

Net Oil Importers: These currencies tend to benefit when oil prices drop: JPY, EUR, KRW, ZAR, INR, TRY, CNY, IDR

Looking Ahead: API Crude Oil Inventories Report scheduled after US close.

Cross-Asset CorrelationMatrix(1 Week, 1 Month & 3 Month Timeframe)

Negative Crude Oil Prices Amid Historic Capitulation: Cross Asset CorrelationNegative Crude Oil Prices Amid Historic Capitulation: Cross Asset CorrelationNegative Crude Oil Prices Amid Historic Capitulation: Cross Asset Correlation

Source: Refinitiv, DailyFX. The Topix is used a proxy for the Nikkei 225.

— Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX





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