International Oil Prices at $10... 40% Plunge One Day Before Expiration

WTI May Contract Trades at $10
Confusion Grows a Day Before Futures Expiration
Illusion Effect Also Evaluated... June Contract Around $22
"Big Money Opportunity If Storage Available" Also Assessed

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] International oil prices are experiencing the worst crash in history. During the trading session, international oil prices plummeted by over 40%, falling to the $10 level.

On the 20th (local time) at the New York Mercantile Exchange (NYMEX), May delivery West Texas Intermediate (WTI) crude oil started trading at $17 and immediately began to plunge. As of 11 a.m., the price had dropped 41.27% to $10.73. After opening, WTI fluctuated between $10 and $11 but showed no meaningful rebound, enduring its worst day.

MarketWatch, citing Dow Jones, reported that the WTI price on this day was the lowest in 22 years since December 1998. The May WTI had already fallen 19% in its last trading session last week.

However, it is difficult to evaluate international oil prices based solely on the May contract. Unlike the recent May contract, June WTI is trading down 8.31% at $22.95. The July contract is also trading around $28, down 5%. This means that contracts closer to expiration are trading at lower prices. Brent crude, the international benchmark from the North Sea, is also trading around $26, down about 5%.

The May WTI futures contract expires tomorrow. It is unusual for such extreme volatility and a plunge to occur one day before expiration. Reports that oil inventories are overflowing and storage is becoming a problem appear to have influenced this.

Lead economist Reed Ranson of market research firm Kepler noted the price difference between May and June contracts is double, and between May and November contracts is triple, stating, "If storage can be found, this is an opportunity to make big money." However, this strategy is meaningless when storage is insufficient.

Regarding the extreme volatility of May WTI, Steven Innes, investment strategist at Axi Group, said, "The May WTI price is experiencing extreme turmoil due to the combined effects of expiration and weak demand."

Jeff Kilburg, analyst at KKM Financial, also diagnosed, "The extreme price difference between May and June contracts is a phenomenon caused by the recent expiration effect of the near-month contract combined with the sharp drop in international oil prices."

Helim Croft, commodity investment strategist at RBS Capital, evaluated, "There is an oversupply of crude oil. Refiners do not need crude oil to the extent that it is excessive. No measures have been introduced to calm the oil market."

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