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Holy WTF Moly: WTI May Contracts Collapse to Negative -$37

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Via Wolf Street

Some hedge funds and big crude-oil traders must be blowing up.

By Wolf Richter for WOLF STREET.

It’s not often that we’re served up a WTF moment like this. Just about a couple of hours ago, I published my article about US crude-oil benchmark grade West Texas Intermediate (WTI) and how it collapsed by 45% to $10 a barrel — US Crude Oil Gets Annihilated Under Targeted Saudi Attack — and I pointed at some of the dynamics. But WTI kept plunging.

This is the near-month May futures contract, which expires tomorrow. It should normally trade close to the spot market price, but has now divorced from it. It has continued to collapse in a breath-taking pace to $8 a barrel, then $4, then $2, then $0, then below zero, then at -$10 and then… and now settled at negative -$37.63 a barrel:

This is obviously completely nuts. Futures contracts that expire the next day should be close to the spot market cash price.

But the WTI spot cash price “only” collapsed by 35% today to $11.70 at the moment. And in terms of prices further out, the June futures contract has plunged by 17% to $20.75. So this is a WTI massacre all around, but those prices are still well into positive territory.

So the disconnect between the May contract (-$37.63), and the cash spot price ($11.80), and the June contract ($21.77) point at some serious forced selling and a complete blowup in the May contracts where some oil trading firms and hedge funds were caught on the wrong side of some heavily leveraged bets. And now the whole thing has gone haywire.

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Over the next couple of days, we’ll probably learn who some of those exploded-imploded players might have been. Meanwhile this is a moment for historic reflection and head-shaking.

“I don’t think we’ll have a long-lasting Great Depression…. But we may have a different kind of a mess. All this money-printing may start bothering us.” Read... Munger: “Nobody Knows What’s Going to Happen.” And This Time, Berkshire Is Not Piling into Stocks & Companies

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