Oil futures plunged on Monday below zero, the latest never-before-seen number to emerge amid the economic fallout caused by the coronavirus pandemic.
The plunge means oil producers are paying buyers to take the commodity off their hands over concerns that storage capacity could deplete in May. Demand for oil has dried up as lockdowns across the globe have kept people inside to control the spread of the virus.
As a result, oil companies have resorted to renting tankers to store the surplus supply and that has driven the price of U.S. oil futures into negative territory.
The price of a barrel of West Texas Intermediate (WTI), the benchmark for U.S. oil, plunged as low as minus $37.63 a barrel.
“This is off-the-charts wacky,” Stewart Glickman, an energy equity analyst at CFRA Research, told BBC.
“The demand shock was so massive that it’s overwhelmed anything that people could have expected.” Glickman added.
The severe fall on Monday was partially driven by a technicality of the global oil market. Oil is traded on its future price and May futures contracts are set to expire on Tuesday. Traders were seeking to offload those holdings to avoid having to take delivery of the oil and bear storage costs.
June prices for WTI also dropped, yet trading at above $20 per barrel. Brent Crude – the benchmark used by Europe and the rest of the world, which is already trading based on June contracts – also tumbled, down 8.9 percent to almost $25.57 a barrel.
“Almost by definition, crude oil has never fallen more than 100 percent, which is what happened today,” Dave Ernsberger, global head of pricing and market insight at S&P Global Platts, told France 24.
“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.” Ernsberger added.