US oil prices have crashed on Monday 20th April 2020, to a record low, as demand continues to plummet over the continued and compulsory stay at home due to the coronavirus pandemic. This negative US Oil Price means, oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May.
According to the report by BBC, the drop in the US Oil price have seen oil firms resorting to renting tankers to store the surplus supply and that has forced the price of US oil into negative territory.
The price of a barrel of West Texas Intermediate (WTI), the benchmark for US oil, fell as low as minus $37.63 a barrel.
Brent crude, the international benchmark, also slumped, but that contract was nowhere near as weak because more storage is available worldwide.
The May U.S. WTI contract fell $55.9, or 306%, to settle at a discount of $37.63 a barrel after touching an all-time low of -$40.32 a barrel. Brent was down $2.51, or 9%, to settle at $25.57 a barrel.
The report obtained from Reuters, quoted one Phil Flynn, an analyst at Price Futures Group in Chicago saying that; “The storage is too full for speculators to buy this contract, and the refiners are running at low levels because we haven’t lifted stay-at-home orders in most states,” he said.
Adding further, he said:
“There’s not a lot of hope that things are going to change in 24 hours.”
Physical demand for crude has dried up, creating a global supply glut as billions of people stay home to slow the spread of the novel coronavirus.
Refiners are processing much less crude than normal, so hundreds of millions of barrels have gushed into storage facilities worldwide. Traders have hired vessels just to anchor them and fill them with the excess oil. A record 160 million barrels is sitting in tankers around the world.
U.S. crude stockpiles at Cushing rose 9% in the week to April 17, totalling around 61 million barrels, market analysts said, citing a Monday report from Genscape.
With U.S. oil prices trading in negative territory, that means sellers have to pay buyers for the first time ever to take oil futures. It’s unclear, though, whether that will trickle down to consumers, who typically see lower oil prices translate into lower prices for gasoline at the pump.
“Normally this would be stimulative to the economy around the world,” said John Kilduff, partner at hedge fund Again Capital LLC in New York. “It normally would be good for an extra 2% on the GDP. You’re not seeing the savings because no one is spending on the fuels.”
Others have also accused Saudi-Arabia of this negative US oil price, as they are still trading blows in the physical market, despite the truce to stabilise the oil markets.
Earlier this month, Opec members and its allies finally agreed a record deal to slash global output by about 10%. The deal was the largest cut in oil production ever to have been agreed.
But some analysts said the cuts were not big enough to make a difference.
“It hasn’t taken long for the market to recognise that the Opec+ deal will not, in its present form, be enough to balance oil markets,” said Stephen Innes, chief global market strategist at Axicorp.
The leading exporters – Opec and allies such as Russia – have already agreed to cut production by a record amount.
In the United States and elsewhere, oil-producing businesses have made commercial decisions to cut output. But still the world has more crude oil than it can use.
And it’s not just about whether we can use it. It’s also about whether we can store it until the lockdowns are eased enough to generate some additional demand for oil products.