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Oil prices dive into uncharted waters

Luke Grant

Even as major oil-producers have agreed to cut output amid a massive glut, this hasn’t prevented the US oil price falling into negative territory for the first time ever.

 

Dr Lurion De Mello, Senior Lecturer, Department of Applied Finance at Macquarie University’s Business School, joins Luke Grant to explain how this happened.

 

‘The extreme event of an actual negative oil price was triggered by speculation as much as by dwindling demand.’

 

‘The West Texas Intermediate (WTI) price shock on 20 April was driven mainly by the expiry of the May oil futures contract which could not find a buyer to take delivery of barrels. This indicated to the market that there was little interest from buyers to take physical delivery of oil.’

 

‘The collapse in the price was exacerbated by an exchange traded fund with a 25 per cent stake in an expiring contract. The fund dumped its holding onto the market at whatever price it could get, driving the severe negative impact on the price.’

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Luke Grant
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