Global supply of crude oil has been cut by about 10 million barrels per day whilst global demand has fallen by around 30 million barrels per day. The extent of the problem is that crude oil to be delivered next month has nowhere to be stored
The US crude oil price has fallen below zero for the first time in history.
The crude oil price fall is indicative of the economic disaster being created by the coronavirus pandemic.
The negative price means that a barrel of US crude delivered in May plummeted to negative US$37.63. It was about $60 at the start of 2019.
Traders are still paying US$20.43 for a barrel of US oil to be delivered in June, which analysts consider to be closer to the “true” price of oil, AP News reported.
With at least 20% of the world’s population under a form of lockdown, basically meaning to stay inside a home, factories, vehicles and aeroplanes that normally guzzle fuel are idle and the consumption of fuel has fallen sharply.
Global supply of crude oil has been cut by about 10 million barrels per day whilst global demand has fallen by around 30 million barrels per day. The extent of the problem is that crude oil to be delivered next month has nowhere to be stored. Storage tanks are close to being full even before the deliveries arrive.
Tanks at a key energy hub in Cushing, Oklahoma could hit their limits within three weeks, said 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.”
Andy Lipow, of Lipow Oil Associates, said: “It’s clear that Cushing is going to fill and it will stay full for the next several months. Because producers have been lagging in their production cuts we’re seeing an overwhelming amount of crude oil looking for a place to go around the world.”
Brent crude, the international standard, fell nearly 9% to US$25.57 per barrel.
The plunge in the fuel price 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.
More gains from companies that are winners in the new stay-at-home economy helped limit the market’s losses. Netflix jumped 3.4% to set another record as people shut in at home look to fill their time. Amazon added 0.8%.