With Nowhere to Store Oil, Prices Plunge04/20/2020

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Oil prices are plummeting today as a lack of demand for oil combined with a surge in production from Russia and Saudi Arabia has caused supplies to increase to the point storage tanks are near capacity. With stay-at-home orders in effect to combat COVID-19, people have essentially stopped driving and flying and thus have little need for gasoline or jet fuel, which are oil byproducts.

Investors that bought contracts for the right to buy oil in the future are now willing to pay money to get rid of the oil, sending oil prices negative for the first time. For these investors, the future is now, and the major storage facility in the United States located in Cushing, Oklahoma, could be completely full within weeks. The contracts expire tomorrow and with nowhere to store the oil, contract holders need to get rid of it and are even willing to pay others to take it. Oil producers are also willing to pay money for investors to take oil from them in order to delay shutting down oil fields and wells, which can be costly.

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Commentaries are published by Cetera Investment Management LLC, an SEC registered adviser owned by Cetera Financial Group. Cetera Investment Management provides market perspectives, portfolio guidance, model management, and other investment advice to its affiliated broker-dealers, dually registered broker-dealers and registered investment advisers.

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