We are experiencing a historical moment when America’s oil price last night plunged below zero as producers failed to find enough oil storage space, forcing them to pay buyers to take it off their hands.
West Texas Intermediate, the US benchmark, fell to -$37.63 a barrel, a loss of 306 percent, or $55.90, for the day. On Friday, it had closed at $18.27 a barrel.
On Monday WTI’s price for May deliveries fell to $ 11.04 a barrel during the mid-day trading session, the lowest level in 22 years. As the market closed, the price of US crude oil fell below zero, ending the day with a negative value of minus $ 37.63 per barrel.
This means that oil producers are paying buyers to take and store oil for fear that they may run out of space in the producers’ oil storage facilities in May. Negative crude oil prices reached for the first time in world history.
The explanation is that the oil extraction process is continuing and in many places, it is difficult and expensive to stop it. The demand for oil products is falling. There is no physical place to put oil in the short term – there is a lack of storage. Buyers are forced to sell previously purchased contracts at any price. For producers, it is cheaper to give away oil than stop producing.
A group of oil-producing countries agreed to reduce oil production by 9.7 million barrels per day in May and June in a video conference on OPEC + on 12 April with a view to raising oil prices.
However, investors believe that this reduction will not be enough to offset the drop in demand caused by the coronavirus crisis.
The International Energy Agency predicts that global oil demand will experience the sharpest drop this year, mainly due to the negative impact of the spread of the coronavirus.