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Negative Crude Oil Prices Amid Historic Capitulation: Cross Asset Correlation

Negative Crude Oil Prices Amid Historic Capitulation: Cross Asset Correlation

Justin McQueen, Analyst

CAD, AUD, GBP, S&P 500 Analysis & News

  • Historic Oil Collapse as Prices Go Negative
  • Storage Capacity Concerns Weigh on June Contract
  • Commodity Currencies Remain Skewed to the Downside

Negative Oil Prices: Yesterday will mark a historic day that for the first time, crude oil prices were negative. The beginning of Monday’s session saw WTI crude May futures trading just shy of $19, before settling at circa -$38/bbl after the largest one day plummet in history. While the oversupply and demand destruction factors continue to paint a very bleak picture for oil prices, the plunge can largely be explained through technical factors.

May Contract: The current front-month contract is for crude delivered in May, which is due to expire today at 1930BST. Given that WTI futures contracts are settled through physical delivery, buyers of the contract will have to take physical delivery of the oil if no buyers are found before expiry. As such, positions typically roll-over to the next contract, in this case the June contract.

However, with inventories nearing full storage capacity, physical buyers in the market have been lacking and thus speculators have been unable to offload their oil position. As such, oil prices are in free-fall making negative oil prices a reality, which in turn means that front-month contract holders are paying someone to take them out of their positions before expiry.

Oil - US Crude MIXED
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -14% 9% -3%
Weekly 2% -9% -4%
What does it mean for price action?
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Storage Capacity Filling Up: Of note, the US Department of Energy recently stated that around 55mln barrels of oil had been stored near the Cushing terminal. That said, with the touted full capacity at 79mln barrels, storage capacity concerns are likely to rise next month, which in turn raises the likelihood that the June contract will come under significant pressure, which has been evident in today’s session

Commodity Currencies: Falling oil prices favours CAD downside against the Japanese Yen and US Dollar.

USD/CAD BULLISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -19% -1% -12%
Weekly -26% 81% 0%
What does it mean for price action?
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Net Oil Exporters: These currencies tend to weaken when oil prices drop: CAD, NOK, MXN, RUB

Net Oil Importers: These currencies tend to benefit when oil prices drop: JPY, EUR, KRW, ZAR, INR, TRY, CNY, IDR

Looking Ahead: API Crude Oil Inventories Report scheduled after US close.

Cross-Asset CorrelationMatrix(1 Week, 1 Month & 3 Month Timeframe)

Negative Crude Oil Prices Amid Historic Capitulation: Cross Asset CorrelationNegative Crude Oil Prices Amid Historic Capitulation: Cross Asset CorrelationNegative Crude Oil Prices Amid Historic Capitulation: Cross Asset Correlation

Source: Refinitiv, DailyFX. The Topix is used a proxy for the Nikkei 225.

--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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