The spectacular collapse in oil markets is showing no signs of easing, as the coronavirus crisis saps demand and producers run out of places to store all their excess barrels of crude.
What’s happening: US oil prices plunged, falling below $0 Monday to $-37.63 a barrel.
That’s the lowest level since NYMEX opened oil futures trading in 1983.
The selloff can be attributed in part to market mechanics. The May futures contract for West Texas Intermediate, the US benchmark, is about to expire. Most investors are already focusing on the June contract, thinning out trading volume and feeding volatility, UBS analyst Giovanni Staunovo said.The June futures contract for WTI is trading around $22 per barrel, but that’s still sharply lower on the day. Brent crude futures, the global benchmark, fell 8% Monday to $25.81 per barrel.
“No one in America wants oil in the short term,” Jeffrey Halley of Oanda told clients on Monday.
Saudi Arabia, Russia and other producers tried to prop up prices with a deal last week to slash production by 9.7 million barrels per day in May and June, the deepest cut ever negotiated. But that isn’t expected to soak up the supply glut caused by evaporating demand for energy.
Oil storage facilities are still at risk of overflowing, raising the chance that some oil producers in the United States and Canada could start paying customers to take crude off their hands, according to Staunovo.
Investors are particularly worried about storage reaching capacity in Cushing, Oklahoma, the main US hub.
Rystad Energy, a consultancy, forecasts that US commercial crude stocks will hit all-time highs by the end of April and will continue rising into May.