‘Unprecedented and seemingly unreal’ subzero oil price scenario unfolds
NEW YORK: US crude oil futures collapsed below $US0 yesterday for the first time in history, amid a Covid19induced glut, ending the day at a stunning $US37.63 a barrel as desperate traders paid to get rid of oil.
Brent crude, the international benchmark, also slumped, but that contract was nowhere near as weak because more storage is available worldwide.
US oil prices entered negative territory for the first time. but it is unclear whether that will trickle down to consumers.
As billions of people around the globe stay home to slow the spread of Covid19, physical demand for crude has dried up.
Traders fled from the expiring May US oil futures contract in a frenzy yesterday with no place to put the crude, but the June West Texas Intermediate (WTI) contract settled at a much higher level of $US20.43 a barrel.
The May US WTI contract fell $55.90, or 306%, to settle at a discount of $37.63 a barrel after touching an alltime low of $40.32 a barrel. Brent was down $2.51, or 9%, to settle at $25.57.
‘‘It’s like trying to explain something that is unprecedented and seemingly unreal,’’ Rystad Energy oil markets analyst Louise Dickson said. ‘‘Pricey shutins or even bankruptcies could now be cheaper for some operators, instead of paying . . . to get rid of what they produce.’’
Refiners are processing much less crude than usual, 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.
Investors bailed out of the May contract because of lack of demand for the actual oil. When a futures contract expires, traders must decide whether to take delivery of the oil or roll their positions into another contract for a later month.
Usually, this process is relatively uncomplicated, but this time there are very few counterparties that will buy from investors and take delivery.
Prices have been pressured for weeks; Covid19 has hammered demand while Saudi Arabia and Russia fought a price war and pumped more. The two sides agreed more than a week ago to cut supply by 9.7 million barrels per day, but that will not quickly reduce the global glut.
Brent oil prices have fallen about 60% since the start of the year, and US crude futures about 130%, leading to drilling halts and drastic spending cuts.
A weak global economy also pressured prices; Germany is in severe recession and Japanese exports declined the most in nearly four years in March.
US oilfield services giant Halliburton Co yesterday reported a $US1 billion firstquarter loss on charges and outlined the largest budget cut yet among top energy companies. — Reuters