US oil prices turn negative for the first time in history
April 21, 2020
New York: US oil prices turned negative on Monday for the time in history.
West Texas Intermediate crude for May delivery shed more than 300 per cent to settle at -37.63 USD per barrel on the New York Mercantile Exchange.
What it means is that oil producers are paying the buyers to take the commodity off their stocks amid fears that storage capacity could run out in May, the BBC reported.
With the Covid-19 induced lockdown restricting movement across the world, demand for oil has all but dried up.
As a result, oil firms have resorted to renting tankers to store surplus supply, forcing the price of oil in the US to the negative zone, the BBC reported.
The decline comes despite the recent output cut agreement between the Organization of Petroleum Exporting Countries (OPEC) and its allies. There were hopes that agreement would stabilise oil prices, but with the Covid-19 pandemic continuing, there has been a large slip in demand that is not letting a pick-up in oil prices.
The current market is oversupplied on shrinking demand, creating a situation of free fall for crude.
The severe drop on Monday was driven in part by a technicality of the global oil market. As per the BBC report, oil is traded on its future price and May futures contracts are due to expire on Tuesday. Traders were keen to offload those holdings to avoid having to take delivery of the oil and incur storage costs, it said.
The price of oil has now reached a point that it is increasingly becoming difficult for higher cost producers to remain in operation and rather look at declaring bankruptcy. A lot of US shale producers are in deep trouble and analysts expect that low oil price for few more months will result in a spate of bankruptcies in US. IANS