Why did the oil market crash into negative? RT’s Max Keiser gives his take on record-low crude prices & broken banking system
West Texas Intermediate (WTI) crude futures – the main US benchmark – saw an unprecedented drop on Monday, settling at a historic low of -$37.63 per barrel and dipping into negative territory for the first time since the New York Mercantile Exchange (NYMEX) opened its doors in 1983. While the freefall was helped along by dissolving demand amid the global coronavirus pandemic and the aftermath of a Russia-Saudi price war, Keiser said the problems go much further, pointing to deep-seated structural flaws in the world economy.
“Intuitively, the casual observer is utterly perplexed when they hear the price of oil has gone negative and they are right to think something is fundamentally wrong with this market,” Keiser said. “Negative oil-futures prices means you’re paying somebody to take your oil.”
The same observer might also struggle to grasp the concept of negative interest rates – where short-term Treasury bills briefly sunk late last month – Keiser went on, noting the rock-bottom rates are further proof that the global financial system was “destroyed irreparably” during the 2008 crash, when banks were “crushed to death” under $200 trillion in uncollateralized debt.
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We should see negative oil prices and negative interest rates as the severed body parts of a dismembered banking beast littering the financialization abattoir we created with cheap money and endless deregulation.
Hoping to prop up insolvent banks with $500 trillion in new fiat money “like a Potemkin Village,” the monetary remedies offered by world governments since the ‘08 meltdown have largely fallen flat, Keiser said, adding: “Now in 2020, the rotting corpse of global banks – dead since 2008 – is disintegrating before our eyes and all price signals from all markets have become meaningless.”
The rapid nosedive of crude prices comes as storage space dwindles amid a global supply glut, with traders simply running out of room for additional oil. US President Donald Trump on Monday announced that 75 million barrels would be added to the Strategic Petroleum Reserve, buying up petrol at its record-low price level in order to “top off” the emergency stockpile.
“This is a great time to buy oil and we’d like to have Congress approve it,” Trump told reporters on Monday, adding that “at a minimum,” the government would charge for temporary storage space in the reserve.
WTI rebounded back into positive territory on Monday evening, following the president’s remarks, though it’s unclear whether markets were responding to news about the government oil purchases.Also on rt.com It's a storage problem, not a market problem that is driving down oil prices to historic lows
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