Oil: From negative prices to a bull market

Every day, traders in London congregate at 4 PM to buy and sell North Sea oil for half an hour. The window, as it's known in the industry, is where competition between the most powerful players in the market sets the price of Brent crude.

Two months ago, every trader wanted to sell cargoes and none were keen to buy. Now the window has transformed into a bull market, where bids outnumber offers 10 to one and prices are surging.

"The physical market is strong," said Ben Luckock, co-head of oil trading at Trafigura Group.

The turnaround reflects the most torrid period in the history of oil.

First, the coronavirus outbreak obliterated demand in China and shattered the oil alliance between Moscow and Riyadh. Next, the global epidemic and the SaudiRussia price war pushed the market to the brink of disaster. The collapse brought the rivals back together for the biggest production cut on record, as the pandemic ebbed.

The renewed strength of the "physical market" for crude—where actual barrels change hands between producers, refiners and traders—is driving a surge in the much larger Wall Street world of oil contracts traded on exchanges in London and New York.

West Texas Intermediate futures rose above $40 a barrel on Friday. That's a mirror image of two months earlier, when the US benchmark made an unprecedented plunge into negative pricing as storage tanks came close to filling.

Beyond the symbolism of that number for the American market, the oil price curve for Brent -- the range of futures contracts covering the coming months -- shows the international market has transformed too.

It flipped last week into so-called backwardation, with crude for immediate delivery trading at a premium to forward contracts.