U.S. Oil Prices Turn Negative for the First Time in History, WTI Futures Collapse Over 300%

UTC by Bhushan Akolkar · 3 min read
Photo: Depositphotos
Photo: Depositphotos

In a massive single-day crash, the WTI futures of the U.S. oil market made its historic low going negative up to -$37 per barrel. This happened amidst U.S. oil reserves coming to the maximum capacity due to the demand slump caused by COVID-19.

It was a bloodbath in the U.S. oil market on Monday as the WTI crude futures collapsed over 300% in a single day. The WTI oil futures for the May Expiry plunged to -$40 per barrel. The massive crash in the oil prices came as the U.S. has been running out of storage space to store more oil reserves.

All this started after the OPEC countries led by Saudi Arabia started an oil war with Russia last month. Upon a failed agreement to control oil production, both these countries maxed out their oil production just to gain a larger market share. Well, the problem is all this happened just at the wrong time when the global oil demand is sinking.

The coronavirus pandemic has hit global businesses to a great scale. Moreover, with major countries announcing a lockdown, retail consumption has tanked to great extremes. Thus, with demand sinking and production rising, it made no economic sense.

Besides, the oil war between the two giants made it impossible for the U.S. shale companies to make any money. Rystad Energy said that with the $20 oil environment, around 500 U.S. oil exploration and production companies will file for bankruptcy. Speaking to CNN, Artem Abramov, head of shale research at Rystad Energy, said:

“$30 is already quite bad, but once you get to $20 or even $10, it’s a complete nightmare. At $10, almost every US E&P company that has debt will have to file Chapter 11 or consider strategic opportunities”.

WTI Oil Price Is Down, U.S. President Donald Trump Chips In

In response to the crashing U.S. oil markets, President Donald Trump said that his administration is reviewing all possibilities. He further added that the U.S. is looking at the possibility of stopping new oil shipments from Saudi Arabia. He added that it will be the first time in many decades that the U.S. will buy around 75 million barrels of oil and put it into strategic reserves.

Speaking to Al-Jazeera, Louise Dickson, oil markets analyst at Rystad Energy, told Al Jazeera, said:

“WTI doesn’t have anywhere to go. Traders have had a whole month to sit on this oil and decide what to do with it, and today is the last day they could sell it.”

Samantha Gross, an energy and climate fellow at the Brookings Institution, iterated some similar views. Gross said:

“Wow. Prices needed to fall given the rapid decrease in demand and storage filling quickly. But I did not expect them to fall so fast. We have never seen companies paying to have their oil taken away. It can’t stay this way for long – it is the market signalling that storage is filling rapidly and that more production isn’t needed.”

On the other hand, Brent Crude, the globally used oil benchmark has relatively managed to old the fall. However, it was still weaker by 9% on Monday with prices slipping below $26 a barrel. Well, is this pointing any opportunity for new investors or buyers to chip-in? Naeem Aslam, the chief market analyst at AvaTrade, thinks so.

“The bottom line is that there is no doubt that oil prices are way oversold at the current level, but given the circumstances, it is likely that the price may continue to fall further because the rig count hasn’t touched its bottom yet. For an investor who holds a long term perspective, a time frame of 12 months to 24 months, the current plunge in oil price represents an opportunity,” explained Aslam.

Commodities & Futures, Market News, News
Bhushan Akolkar
Author: Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

Share this article
Related Articles