On Monday, oil prices in the US dropped to a historic low of -$40.32 on Monday’s close. Oil prices then briefly went up into positive values then dropped back below zero again.
The main reason for the record low oil prices is due to a drop in oil demand. more like zero oil demand. Thanks to the global shutdown due to the coronavirus pandemic.
“We’re not dealing with demand destruction at this point, we’re facing demand disappearance,” an analyst said
Oil prices in the US briefly climbed up above zero on Tuesday after Monday’s history-making low. The first time that oil prices have fallen below zero in history.
West Texas Intermediate oil, the benchmark for US crude prices, was at one point worth $0.10 in European morning trading, before falling once again.
By 7.22 a.m. ET, WTI was at $-6 per barrel, well above the lows of Monday’s prices at -$40.32
Brent crude, the global benchmark price for oil, was down to $16.59 a barrel on Tuesday morning.
These negative prices mean that major oil producers now have to pay buyers to take oil off their hands, this is due to the lack of demand on markets due to the pandemic and a lack of storage space in the US for oil.
Oil prices still continue to drop even after OPEC (Organization of the Petroleum Exporting Countries) and its allies agreed to the largest ever production cut, intended to ease the ‘oil crises’.Investors still aren’t convinced that the cuts can offset the drop in demand as the pandemic has halted normal life.
On Monday, oil prices saw a historic fall in pricing when its May contract for US West Texas Intermediate oil, the benchmark for US crude prices, fell to its lowest-ever record of a negative price at -$40.32 per barrel.
WTI crude for May delivery has been trading at large discounts for longer contracts. Because of a worry that a key storage facility in Cushing, Oklahoma, is nearing capacity, according to Bloomberg.
“Yesterday was a wake-up call and investors would be remiss to ignore that low oil means lower inflation, higher defaults, lower growth and more political instability as fewer petrodollars circulate in the system,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham.
A PR specialist at Refinitiv Alexis Weakley. “The piling up of floating storage. The lack of OPEC+ production cuts in time. Texas producers hoping for relief with a State proposal for cuts. The answer was too simple to use supply. This move happened too fast and went too far to rely on simple fundamentals.”
“Oil prices are at these low levels because of a complete stoppage to demand,” she said. “We’re not dealing with demand destruction at this point, we’re facing demand disappearance.”