Oil Plunges Below Zero for First Time in Unprecedented Wipeout

Of all the wild, unprecedented swings in financial markets since the coronavirus pandemic broke out, none has been more jaw-dropping than Monday’s collapse in a key segment of U.S. oil trading.

The price on the futures contract for West Texas crude that is due to expire Tuesday fell into negative territory -- minus $37.63 a barrel. The reason: with the pandemic bringing the economy to a standstill, there is so much unused oil sloshing around that American energy companies have run out of room to store it. And if there’s no place to put the oil, no one wants a crude contract that is about to come due.

Underscoring just how acute the concern is over the lack of immediate storage space, the price on the futures contract due a month later settled at $20.43 per barrel. That gap between the two contracts is by far the biggest ever.

“The May crude oil contract is going out not with a whimper, but a primal scream,” said Daniel Yergin, a Pulitzer Prize-winning oil historian and vice chairman of IHS Markit Ltd.

Fund Inflow

Despite the weakness in headline prices, retail investors are continuing to plow money back into oil futures. The U.S. Oil Fund ETF saw a record $552 million come in on Friday, taking total inflows last week to $1.6 billion.

The price collapse is reverberating across the oil industry. Crude explorers shut down 13% of the American drilling fleet last week. While production cuts in the country are gaining pace, it isn’t happening quickly enough to avoid storage filling to maximum levels, said Paul Horsnell, head of commodities at Standard Chartered.

”The background psychology right now is just massively bearish,” Michael Lynch, president of Strategic Energy & Economic Research Inc said in a phone interview. “People are concerned that we are going to see so much build up of inventory that it’s going to be very difficult to fix in the near term and there is going to be a lot distressed cargoes on the market. People are trying to get rid of the oil and there are no buyers.”

The New York Times reported on March 6, 2020: “With another wave of concerns about the spread of coronaviruses in the financial markets, oil prices have fallen sharply.” IHS market reports said that “Covid-19 demand shock” represented contraction To a greater extent than the contraction experienced during the Great Depression in the late 2000s and early 2010s.

During the outbreak of the new coronavirus, Saudi Arabia decided to retaliate to increase oil production due to the failure of OPEC member Saudi Arabia and non-member Russia to reduce oil production, which triggered a sharp drop in oil prices. On March 9, 2020, oil prices fell by 24%, which caused global financial panic and stock prices to plummet. Until April 10, they agreed to cut production by 20%.

Due to the 2020 coronavirus pandemic and the oil price war, crude oil prices have fallen to negative numbers for the first time in history. On April 20, 2020, West Texas Intermediate Crude Oil Futures due in May fell nearly 300% in a single day, falling to a minimum of -40.32 US dollars per barrel, and closed at -37.63 US dollars. However, Brent crude oil remained at $ 25 per barrel, reflecting the lack of crude oil storage facilities and speculative livelihoods mainly concentrated in the United States.