Hello. My name is Alex Dryden. I'm a global market strategist with the Market Insights Team at JP Morgan Asset Management. Welcome to the On the Minds of Investors. Today what we're going to look at is why oil is trading in negative territory and what that means for investors.

For the first time in its history, oil prices turned negative this week, with West Texas Intermediate, or WTI, trading as low as negative $37 per barrel. This unique and bizarre situation is a byproduct of three factors. Falling demand, sticky supply, and limited storage capabilities within the oil markets.

Firstly, demand has fallen sharply with the sudden economic shock caused by the virus. The International Energy Agency now predicts that global oil demand will fall by a record 9.3 million barrels per day in 2020, versus the same period last year.

But that's not the only problem. The other issue is massive oversupply. Oil markets have changed dramatically over the last few decades. Go back to the 1970s, and OPEC controlled over 50% of oil production. But now with Russia and the United States making up 13% and 19% of total oil production respectively, it is a much more diverse production backdrop.

What that means is it makes it difficult to agree to cuts and to control prices. In early April, OPEC and Russia did agree to cut production. However, it takes time to implement those cuts, and the impact on prices is not immediate.

Now historically, mismatches between oil demand and oil supply are common. Normally, what would happen is that any excess supply would be parked in storage for a period of time, and we only would await the market equilibrium to return.

However, oil storage facilities are currently about 80% full, and there are reports that this will be completely full within the coming weeks. Between these three factors of falling demand, sticky supply, and rapidly filling oil facilities, oil producers have become desperate. In their exasperation, they are now trading oil prices at negative levels, which means that they are essentially trying to pay investors and individuals to take oil off their hands physically.

Now, the near term outlook for oil remains bleak. However, over the longer term, the markets are signaling some hope of stabilization. Taking a look at the WTI forward curve suggests that investors are expecting oil to rebound towards $35 a barrel over the coming year. That should bring some stabilization and a light at the end of the tunnel for oil producers.

This content has been produced for information purposes only. And as such, the views contained herein are not to be taken as advice or a recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the recipient.

The material was prepared without regard to specific objectives, financial situation, or needs of any particular receiver. Any research in this asset has been obtained and may have been acted upon by JP Morgan Asset Management for its own purpose. The results of such research are being made available as additional information, and do not necessarily reflect the views of JP Morgan Asset Management.

Any forecasts, figures, opinions, statements of financial market trends, or investment techniques and strategies expressed are those of JP Morgan Asset Management, unless otherwise stated. As of the date of production, they are considered to be reliable at that time, but no warranty as to the accuracy and reliability or completeness in respect of any error or omission is accepted.

They may be subject to change without reference or notification to you. JP Morgan Asset Management is the brand for the asset management business of JPMorgan Chase and Company and its affiliates worldwide. JP Morgan distribution Services Inc. Copyright 2018. JPMorgan Chase and Company.