The price of US oil has turned negative for the first time in history. Oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May. The collapse is a reflection of traders abandoning the May contract, and moving on to June
Demand for oil has all but dried due to lockdowns across the world and producers around the world are continuing to pump. That’s causing a fire-sale among traders who don’t have access to storage.
Oil firms have resorted to renting tankers to store the surplus supply and there is not much space left to store forcing the price of US oil into negative territory.
The price of a barrel of West Texas Intermediate (WTI), the benchmark for US oil, fell as low as minus $37.63 a barrel.
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.
June prices for WTI were also down, but trading at above $20 per barrel. Meanwhile, Brent Crude - the benchmark used by Europe and the rest of the world, which is already trading based on June contracts - was also weaker, down 8.9% at less than $26 a barrel.
Earlier this month, Opec members and its allies finally agreed a record deal to slash global output by about 10% but many analysts say the cuts were not big enough to make a difference.
Canadian oil companies have also begun shutting down steam-driven oil sands production projects as prices continue to fall as per Reuters. This move could have dire long-term consequences for the production facilities.
Steam-driven oil sands production, involves injecting steam into an oil sands deposit to melt the bitumen and make it flow up the well. To keep the well operational, the temperature and pressure at such sites must be maintained at a certain level. Disruption, Reuters explains, could result in permanent damage, which would translate into a permanent loss of production.
Western Canadian Select, the heavy oil benchmark of Canada, has been trading below $10 for about ten days now. WSC touched $-0.01 a barrel on Monday