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- Oil prices briefly bounced back into positive territory Tuesday before dropping back below zero following Monday’s historic price rout.
- WTI crude was selling at $0.10 per barrel at one point in morning trading, before it fell back to negative territory at $-6 per barrel by early morning US time. Brent crude, the global benchmark price for oil, was down to $16.4 a barrel after sliding almost 9.5% on Monday.
- Oil demand has evaporated in recent weeks, partly thanks to the global shutdown caused by the coronavirus pandemic.
- “We’re not dealing with demand destruction at this point, we’re facing demand disappearance,” said one analyst.
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US oil prices briefly climbed back above zero on Tuesday, before dropping back into negative territory, following on from Monday’s historic plunge into negative prices for the first time in history.
US 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, according to Markets Insider data.
Brent crude, the global benchmark price for oil, was down to $16.59 a barrel on Tuesday morning after sliding almost 9.5% on Monday.
Oil’s price dropping into negative territory means that major oil producers now have to pay buyers to take oil off their hands. This reflects the evaporation of demand in markets amid the global coronavirus shutdown, and a lack of storage space in the US for oil.
Tuesday marks the final day of trading for WTI oil’s May futures contracts, meaning that anyone holding a contract after this point is obliged to take delivery of the physical product. With little storage available, traders scrambled to offload their contracts, leading to the historic plunge.
The price of oil has continued to slide even after OPEC and its allies agreed to the biggest-ever production cut — one intended to backstop prices. Investors remain unconvinced that the cuts can offset cratering demand for the commodity as the novel coronavirus pandemic keeps society from operating normally.
On Monday, the immensely volatile commodity witnessed a historic plunge 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, a vicious signal for energy companies in these times.Â
WTI crude for May delivery has traded at large discounts to longer-dated contracts. That dynamic is playing out amid worry that a key storage hub in Cushing, Oklahoma, is nearing capacity, according to Bloomberg.
‘We’re dealing with demand destruction’
Analysts were quick to comment on the historical significance of Monday’s moves, with one describing the unprecedented price drop as a “wake-up call” for markets.
“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 less petrodollars circulate in the system,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham, in a note.
Alexis Weakley, PR specialist at Refinitiv, pegged the volley down to an oversupply imbalance. “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.”
