For these extraordinary times, The Sherman Show has been producing weekly reviews of the financial markets, macroeconomic data, fiscal actions by the U.S. government and monetary actions by the Federal Reserve. In this episode, recorded the morning of April 22, 2020, hosts Jeffrey Sherman and Samuel Lau and guest Jeff Mayberry also discuss in depth the causes and lessons of the unprecedented April 20 negative price settlement for the May contract on West Texas Intermediate crude oil at $37 per barrel (after marking an intraday low of -$40). They also try to clear up misinformation about the causes of the negative pricing, particularly in social media where some critics have wrongly blamed the market dislocation “financialization” of commodities trading by exchange-traded funds and exchange-traded notes. The true cause, Mr. Lau argues, was the confluence of a supply glut, perhaps years in the making, demand destruction by the economic shutdowns ordered by governments in response to the COVID-19 pandemic and lack of access to oil storage facilities for buyers of May contracts to take physical delivery of oil. If those conditions remain in place by the time of future expiry dates, Mr. Lau suggests, WTI contracts could settle at negative prices again. “Will the buyers, the people who actually go long into the expiry and take delivery, are they going to continue to demand the negative price?” he asks. “I think it’s very possible if we still have … the surplus tied to storage concerns.”
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