Oil prices go negative as demand collapses

NEW YORK » Oil futures plunged below zero on Monday, the latest never-before-seen number to come out of the economic coma caused by the coronavirus pandemic.

Stocks and Treasury yields also dropped on Wall Street, with the S&P 500 down 1.8%, but the market’s most dramatic action by far was in oil, where the cost to have a barrel of U.S. crude delivered in May plummeted to negative $37.63. It was at roughly $60 at the start of the year.

Traders are still paying $20.43 for a barrel of U.S. oil to be delivered in June, which analysts consider to be closer to the “true” price of oil. Crude to be delivered next month, meanwhile, is running up against a stark problem: traders are running out of places to keep it, with storage tanks close to full amid a collapse in demand as factories, automobiles and airplanes sit idled around the world.

Tanks at a key energy hub in Oklahoma could hit their limits within three weeks, according to Chris Midgley, head of analytics at S&P Global Platts. Because of that, traders are willing to pay others to take that oil for delivery in May off their hands, so long as they also take the burden of figuring out where to keep it.

“Almost by definition, crude oil has never fallen more than 100%, which is what happened today,” said Dave Ernsberger, global head of pricing and market insight at S&P Global Platts.

“I don’t think any of us can really believe what we saw today,” he said. “This kind of rewrites the economics of oil trading.”

Also exacerbating the volatility is that few traders are buying and selling U.S. oil to be delivered in May. They won’t even have the opportunity to do so after Tuesday, when trading contracts for it expire and the earliest delivery they’ll be able to buy is for June.

Brent crude, the international standard, fell nearly 9% to $25.57 per barrel.

The plunge in oil sent energy stocks in the S&P 500 to a 3.7% loss, the latest in a dismal 2020 that has caused their prices to nearly halve.

The S&P 500 fell 51.40 points to 2,823.16. The Dow Jones Industrial Average lost 592.05 points, or 2.4%, to 23,650.44, and the Nasdaq dropped 89.41, or 1%, to 8,560.73.

The losses ate into some of the big gains indexes have made since late March, driven lately by investors anticipating the potential reopening of businesses as infections level off in hard-hit areas.