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Oil price took a negative dive in the late hours of Monday April 20, as it plunged further to below $0 a barrel for the first time as the coronavirus pandemic lingers.
In a historic crash which came barely a month after experts warned oil prices could dip into negative territory, oil futures opened at their lowest level since 1983.
MarketWatch reported that the soon-to-expire May contract for the U.S. oil benchmark finished deeply in negative territory of $-37.63 a barrel. This implied that investors will need to pay buyers to take delivery of crude oil, reflecting a growing glut of crude and a lack of storage space.
With hundreds of millions of people around the world staying at home to stop the spread of COVID-19, travel by car or plane is nearly nonexistent. Factor in a major lag in manufacturing and other economic activity that requires oil and the reasons for the dramatic crash become apparent. For those still traveling, it’s not uncommon to see gas prices under $1 per gallon at stations across the US these days, though it’s left those businesses hurting.
While the OPEC Plus countries reached an agreement to slash production by more than 9 million barrels of oil per day, the latest crash shows it won’t be enough to overcome the surplus of oil currently out there today.
The one-day plunge is the largest on record going back to 1983, and also the lowest level for a contract on record, according to Dow Jones Market Data.
Oil storage facilities are still at risk of overflowing, raising the chance that some oil producers in the United States and Canada could start paying customers to take crude off their hands, according to Staunovo. Investors are particularly worried about storage reaching capacity in Cushing, Oklahoma, the main US hub.
CNN reported that the June contract CLM20, 4.70%, which is the most actively traded ended down $4.60, or 18.3% at $20.03 a barrel.
Edward Moya, senior market analyst at Oanda said;
“The collapse…is mostly a reflection of traders rolling contracts to June as no one wants to take delivery because storage capacity is getting close to being reached.
“The ever-widening discount for May versus the June contract reflects all the bearish supply and demand drivers that remain permanently in place.”