SINGAPORE (Apr 21): The benchmark West Texas Intermediate (WTI) plunged into negative territory for the first time in history, as crude oil prices plummeted 300% to around minus US$40 per barrel on Monday.

The unprecedented collapse sees sellers effectively paying buyers to take the commodity off their hands.

The drop in prices comes as no surprise to investors due to weakening oil demand – especially from China – over the past few months. 

See also: Finally, we are being paid to consume oil

According to Peter Kiernan, lead analyst for energy at The Economist Intelligence Unit (EIU), the plunge of WTI oil prices was “largely driven by technical factors with traders selling off positions ahead of the expiry of the May contract on Tuesday”.

“Still, the unprecedented level of the fall, to as low as around -US$40, also reflects the exceedingly bearish sentiment about the state of the oil market's fundamentals,” he says.

Financial services group ING, and Phillip Futures, echo Kiernan’s views.

“The sell-off in the soon-to-expire May contract does still shed some light on the state of the physical oil market. Given the extreme demand destruction we are seeing in the market at the moment, storage is filling up quickly,” says ING in a note led by head of commodities strategy Warren Patterson.

“A big factor in the plunge in the front month contract was the U.S. Oil Fund ETF (USO), which recently accounted for nearly 25% of all outstanding May WTI futures contracts,” says Avtar Sandu of Phillip Futures. 

“As part its normal roll, the Oil Fund had to sell the front-month May contract at basically any price and roll into the next futures months,” he notes

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