Oil prices dive more than 100% to minus $37 as demand collapses during coronavirus pandemic
One of the US' crude price futures have plummeted to the lowest level in history and entered into the negatives, as demand for oil continued its decline amid the coronavirus pandemic.
Sharp selling heightened on Monday over concerns about the storage of the excess oil.
The price of the West Texas Intermediate crude oil futures, its May contract expires Tuesday, experienced the sharpest decline by falling more than 300 per cent. Its price hit nearly -$40 per barrel before settling at -$37.63 per barrel, representing the first time an oil futures has turned negative in history.
The oil futures for the May contract are in a free fall because it represented the fuel that would be delivered to the US while a majority of the country was still under stay-at-home and lockdown measures. Typically, this oil would be delivered to entities like airlines, but most oil storages were already filled from lack of use.
This historic collapse came after production cuts were announced earlier this month to offset the decline in need for oil. But production cuts were not enough to accommodate the lack of demand.
"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," wrote Stephen Innes, chief global markets strategist at AxiCorp, CNN reported.
Experts anticipated a rebound in the oil industry following this sharp drop to be slow because people were not currently "going to the pump".
“What the energy market is telling you is that demand isn’t coming back any time soon, and there’s a supply glut," Kevin Flanagan, head of fixed income strategy for Wisdomtree Asset Management, told Reuters. "Ordinarily you’d be looking at oil as an inflation indicator, but then it turned into an economic-activity indicator. This price decline can be good if it means more people going to the pump, but that requires people getting out.”
Compared to the May contract, the June contract was not experiencing the same nose dive in price, and experts said those prices were a better indicator of where the market stood.
WTI, which has a June contract expiring 19 May and was the strongest market indicator, fell 18 per cent to trade at $20.43 per barrel. Brent crude, which has entered into its June contract and was an international benchmark, has fallen 8.9 per cent at $25.83 per barrel.
The spread between the May and June contracts was now the widest in history, according to CNBC.
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