A day ahead of expiration, WTI crude oil futures for May delivery slumped into the negative territory for the first time on history. Plunging by over 100%, the May contract slumped to as low as US$ -40.32/bbl before settling at -37.63. In Asian session today, the contract recovered to positive territory and is trading at 1.35 at the time of writing this report.
Yet, negative price in May futures does not necessarily translate into negative prices in other petroleum products, such as gasoline and diesel, although both are in downtrend.
The June contract, expiring on May 19, declined -18.38% to settle at 20.43. While price will remain under pressure, whether the contract will plummet into the negative next month is less certain. On the one hand, weak demand and the likelihood that Cushing capacity will be full in early May suggest that storage capacity will tighten further in coming weeks. On the other hand, the phenomenon will force US producers to implement aggressive output cut. Following a meeting last week, the Texas Railroad Commission is set to meet again today in discussion on a mandated output cut in the state. Some suggest that the members might call for a 10% reduction. An announcement like this could have a boost in oil prices. However, timing and execution of the production cut are the key.