The contract for May delivery of U.S. crude dropped more than 99% on Monday to a record low, but longer-term things might not be as bad.
Brittany Sowacke | Bloomberg | Getty Images— something it's never done before. But the picture in the oil market might not be as bleak as this eye-popping decline would suggest.
Futures contracts ultimately are contracts for psychical delivery of the underlying commodity or security. While some people in the market speculate on the contracts, others are buying and selling because they have use for the commodity itself. Near the contract's expiration, traders just start buying the next month's futures contract. Those who stay in the position to the final day are typically buying the physical commodity, such as a refiner.
That's why it turned negative, meaning producers would pay to get this oil off their hands because there is no one that needs that oil this week with the country shutdown. Trading volume was also relatively thin in the May contract. According to data from the CME Group, volume stood at roughly 126,400. By comparison volume for the June contract was nearly 800,000.
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