One of the most desirous and curious questions that’s in the mind of many Market participants recently is – Will the Crude Oil Prices Recover? – Taunted as the most essential resource on the planet, Crude oil lost all its value in a Single day to the forces of Market Speculation. On Monday, The Futures contract for US Crude Prices dropped more than 100% and turned negative for the first time in History, showing how much demand has collapsed due to lockdown. Oil prices crashed from 18$ a barrel to -38$ in a matter of hours! Yes it’s -38$ a barrel. Here’s the Chart that clearly shows the Panic behavior in Crude Oil, Take a Look
Visualizing the Fall in Crude Oil Prices
Why it happened?
So Why did Oil prices reached negative boundaries? It’s all because of Storage issues. The rising inventories of Crude Oil overwhelmed the storage facilities and increased the Storage cost. To reduce the storage cost and survive in the business, oil producers are paying the buyers to take the barrels they could not afford to store! Think of it as an Inventory Clearance sale where Shopkeepers sell their products at far lower price to clear the old inventories. In case of Crude Oil things went to the extreme point where sellers are willing to pay the buyers to clear the inventory and cut the Inventory cost!
Will the Crude Oil Prices recover?
Right now Crude prices have bounced back and trading around 20$ a barrel, It didn’t even stay at negative territory for more than a day. Oil prices rose again because of traders and Investors focusing their attention on June Delivery contracts. The recovery in Oil prices is expected to pick up over the second half of the year due to relaxing lockdown and production cuts. But in the next short term, Crude Oil prices are likely to stay range bound or move with a mild bearishness.
Traders should look for trading opportunities on higher time frame as volatility is likely to pick up in coming days. It’ll be interesting to see how the Price Action unfolds in Crude Oil, once things are back to normal.
