Crash! US crude futures turn negative for first time in history

Physical demand for crude has dried up in the wake of coronavirus containment measures, creating a global supply glut. United States oil futures turned negative for the first time in history on Monday with traders dumping May contracts as analysts warn that crude storage will fill to the brim by next month, and US shale firms weigh the real possibility of shutting down production. US benchmark West Texas Intermediate crude for May delivery crashed more than 300 percent on Monday, deep into negative territory, touching -$40.32 before clawing back to settle in the negative thirties. The speed and swiftness of the May contract’s death spiral took even seasoned oil veterans by surprise.

“Wow. Prices needed to fall given the rapid decrease in demand and storage filling quickly. But I did not expect them to fall so fast,” Samantha Gross, Energy and Climate Fellow at Brookings Institution told Al Jazeera. “We have never seen companies paying to have their oil taken away. It can’t stay this way for long- it is the market signaling that storage is filling rapidly and that more production isn’t needed.”

By turning negative, prices are signalling that traders are actually paying to have oil taken off their hands.

“WTI doesn’t have anywhere to go,” Louise Dickson, oil markets analyst at Rystad Energy told Al Jazeera. “Traders have had a whole month to sit on this oil and decide what to do with it, and today is the last day they could sell it.”

April 21 is the last day to trade May 2020 WTI on the New York Mercantile Exchange (NYMEX). And US shale oil finds itself in a major bind with limited storage options. WTI for June delivery was holding above $21 a barrel on Monday.

Brent crude, the global benchmark for oil, is trading around $26 a barrel, having plummeted by as much as 70 percent since the start of January as coronavirus lockdowns have destroyed global demand in crude. The US Energy Information Administration last week reported a record 19.3 million barrel crude stock build. There is currently a remaining 21 million barrels of storage available at the Cushing hub in Cushing, Oklahoma.

But that will fill up to the brim by mid-tolate May, Rystad Energy predicts.

The tsunami of supply has battered the US shale market - where many firms need crude to fetch between $48 and $54 a barrel to break even, according to the Federal Reserve Bank of Dallas.

Oil prices were already weighed down by oversupply going into 2020, and were further pressured by coronavirus containment measures that have obliterated demand. But crude prices went into freefall last month after Saudi Arabia initiated an oil price war in retaliation for Russia not agreeing to deep output cuts to offset the blow from COVID-19 disruptions.

With US shale oil producers getting hammered by the oil price war, US President Donald Trump appealed directly to Saudi Arabia’s de facto leader, Crown Prince Mohammad bin Salman and Russian President Vladimir Putin to set aside their differences and stabilize oil markets.

Those efforts culminated in an historic agreement on April 12 between Saudi-led OPEC and its allies led by Russia, a group known as OPEC+, to cut output by 9.7 million barrels per day.