On Monday, oil selloffs sent oil prices below negative to -$37.63 a barrel. It marked the first time in history that oil went below zero. It was the nail on the coffin for a struggling industry.
As the world finds itself grounded due to the coronavirus pandemic, demand for oil has been next to nothing. Moreover, May futures contracts are set to expire today and oil trades on future prices. The result is that many traders don’t want to take delivery of any more oil. Meanwhile, oil producers are paying to have the commodity taken off their hands because they’re running out of storage.
Futures for West Texas Intermediate (WTI), the global producer of oil, crashed below zero for the first time. June prices, however, were trading above $20 a barrel. While low, it pulled it out of negative territory.
Brent Crude, the global benchmark, was weaker at just under $26 per barrel. This was down by 8.9 percent.
Mitigation efforts to prevent oil from slipping had found a silver lining on April 12 when OPEC and allies agreed to slash output by 10 percent over the coming months. But falling demand has created another oil emergency as producers believe that storage capacity will fall short in May.
Oil producers in the U.S. also decided to cut output. But a surplus of crude still remains and oIl companies have found themselves leasing tankers to store surplus oil. Both land and sea capacities are at their maximum and it could continue to affect oil futures.
Stewart Glickman, a CFRA Research analyst, said: “The demand shock was so massive that it’s overwhelmed anything that people could have expected.” Glickman also noted that should lockdowns stay in place, June futures could fall. “I’m really not optimistic about the prospects for oil companies or oil prices,” Glickman said.
Though oil prices are below rock bottom, prices at the pumps haven’t fallen as dramatically.
“The silver lining is if you for various reasons actually need to be on the roads, you’re filling up for far less than you would have been even four months ago. The problem for most of us is even if you could fill up, where are you going to go,” Glickman said.
President Trump has announced that the government will purchase oil for the national reserve. But there are concerns that even the reserve facilities will run out of storage capacity.
By mid-morning Tuesday, WTI had come out of negative territory and was trading at $3.99 a barrel.