US oil price turns negative in historic collapse

US crude oil for May delivery has turned negative for the first time since trading records began, with oil producers forced to pay buyers to take the product over fears that storage capacity could run out next month.

The COVID-19 (coronavirus) pandemic has destroyed oil demand in the first four months of 2020, while the collapse of a long-standing OPEC supply cuts deal exacerbated the situation after Saudi Arabia and Russia flooded the market with excess oil in a bitter dispute.

Not even last week’s patched up OPEC+ agreement to cut supply by a record amount could stop the oil market reaching a new nadir during yesterday’s trading, when US benchmark West Texas Intermediate (WTI) fell as low as minus US$37.63 a barrel. WTI started the year trading at around $60 a barrel – a fall of over 160%.

US crude’s dive into negative territory on Monday was in part driven by the expiration of May futures contracts today, which meant traders moved to offload those holdings to avoid having to take delivery of the oil and incur storage costs. WTI for June delivery is still trading above $20 a barrel.

“$30 is already quite bad, but once you get to $20 or even $10, it’s a complete nightmare,” said Artem Abramov, head of shale research at Rystad Energy. At $10, there would be more than 1,100 US oil exploration and production company bankruptcies, Rystad estimates.