Spot Crude Oil Futures Trade Below Zero
- West Texas Intermediate crude oil for delivery in May fell into negative territory for the first time in history, closing at -$37.63/barrel yesterday.
- There is a huge incentive to store oil for later sale as the spot price falls sharply below deferred contracts.
- Storage capacity is being rapidly filled due to the huge oversupply caused by the sharp decrease in fuel demand, and producers failure to reduce output at the same pace.
- Firms around the world are trying to free up all space possible, whether in offshore tankers or hurrying to finish work on storage tanks empty for maintenance.
- June crude oil futures fell to as low as $11.79 overnight, but have rebounded to over $15.00 (still down over 20%) as of 7:30 am CT.
FBN’s Take On What It Means: Negative prices may not last long as May Futures expire today, but the crash has hurt confidence in the market. As it will take time to work through the glut of supply, weaker crude oil prices will continue to weigh on margins which trickles down to lower old crop corn demand. The soybean market is being affected by steep losses in veg-oil used to produce biofuels.
USDA Releases Weekly Crop Progress Report
- Corn planting was reported 7% complete within the 5-12% range expected, compared to 3% last week, 5% last year, and 9% average.
- Soybean planting is 2% complete as expected vs 1% last year, and 1% average.
- Spring wheat planting lagged expectations at 7% complete vs 5% last week, 4% last year, and 18% average.
- Cotton planting is 11% done vs 9% last week, 8% last year, and 9% average.
FBN’s Take On What It Means : If the forecast for below normal rains and warm temperatures verifies, it should allow for strong planting progress in the central Corn Belt this week, while the Ohio Valley region may move slower due to above average rainfall in the forecast. Western Corn Belt planting should be getting underway. Timely planting would be a big switch from recent history and would be a first step in reaching trend yields. Unfortunately, this would not be helpful to prices in the near term.
The risk of trading futures, hedging, and speculating can be substantial. FBN BR LLC (NFA ID: 0508695)
