NEW YORK, United States – United States crude oil futures collapsed below $0 on Monday for the first time in history, amid a coronavirus-induced supply glut, ending the day at a stunning -$37.63 a barrel as desperate traders paid to get rid of oil.
The collapse in prices has threatened to tilt the once-booming U.S. oil industry into bankruptcy.
U.S. President Donald Trump said his administration was looking at the possibility of stopping incoming Saudi Arabian crude oil shipments as a measure to support the battered domestic drilling industry.
“Well, I’ll look at it,” Trump told reporters at a daily news conference after he was asked about requests by some Republican lawmakers to block the shipments under his executive authority.
“I heard just as I’m walking into the room. We certainly have plenty of oil, so I’ll take a look at it.”
Storage space for U.S. crude was filling up, discouraging buyers even as weak economic data from Germany and Japan cast doubt on when fuel consumption will recover.
Physical demand for crude has dried up, creating a global supply glut as billions of people stay home to slow the spread of the novel coronavirus.
Trump said the global producer group known as OPEC+ had agreed to cut production by some 15 million barrels per day, and said weak prices could force more declines for economic reasons.
Investors bailed out of the May contract ahead of expiry later on Monday because of lack of demand for the actual oil. When a futures contract expires, traders must decide whether to take delivery of the oil or roll their positions into another futures contract for a later month.
Usually this process is relatively uncomplicated, but this time, there are very few counterparties that will buy from investors and take delivery of the oil. Storage is filling quickly at Cushing in Oklahoma, which is where the crude is delivered.
“There is no bid for May WTI as there is no buyer and we have yet to see a significant reduction is supply at Cushing to offset it,” said Scott Shelton, energy specialist at United ICAP.
Refiners are processing much less crude than normal, so hundreds of millions of barrels have gushed into storage facilities worldwide. Traders have hired vessels just to anchor them and fill them with the excess oil. A record 160 million barrels is sitting in tankers around the world.
U.S. Crude stockpiles at Cushing rose 9 percent in the week to April 17, totaling around 61 million barrels, market analysts said, citing a Monday report from Genscape.
“The storage is too full for speculators to buy this contract and the refiners are running at low levels because we haven’t lifted stay-at-home orders in most states,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “There’s not a lot of hope that things are going to change in 24 hours.”
Many investors may have been misled by what appeared to be a very low oil price and did not consider the monthly expiry of futures contracts, Commerzbank analyst Carsten Fritsch said.
Prices have been pressured for weeks with the coronavirus outbreak hammering demand while Saudi Arabia and Russia fought a price war and pumped more. The two sides agreed more than a week ago to cut supply by 9.7 million bpd, but that will not quickly reduce the global glut.
Brent oil prices have collapsed around 60 percent since the start of the year, while U.S. crude futures have fallen around 95 percent, to levels well below break-even costs necessary for many shale drillers. This has led to drilling halts and drastic spending cuts.
Weak global economic data also pressured prices. The German economy is in severe recession and recovery is unlikely to be quick as coronavirus-related restrictions could stay in place for an extended period, the Bundesbank said.
Japanese exports declined the most in nearly four years in March as U.S.-bound shipments, including cars, fell at their fastest rate since 2011.
The mood in other markets was also cautious as the first-quarter earnings season gets underway. Analysts expect STOXX 600 companies to post a 22 percent plunge in earnings, which would represent the steepest decline since the 2008 global financial meltdown, IBES data from Refinitiv showed.
Canada, the world’s fourth-largest oil producer, has begun to rein in production, but analysts say the biggest cuts lie ahead.
The Russian energy ministry has told domestic oil producers to reduce oil output by around 20 percent from their average February levels, two industry sources told Reuters, which would bring Moscow in line with its commitment under a global deal. – Reuters
