By Adedapo Adesanya
Oil prices continued to trade down on Monday, April 20, but the massive crashing of the West Texas Intermediate (WTI) below $0 into the negatives was the screamer.
Yesterday, prices of the US oil traded into the negative region for the first time in history, resulting into producers paying buyers for the purchase of their products because their storage facilities have been filled up.
As a result, the US benchmark May contract traded as low as -$37.63 per barrel, dropping $-55.9 equivalent to 306 percent. On Monday morning, the commodity had traded at $15 per barrel. 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 analysts.
Traders yielded in the face of limited access to storage capacity across the US, including the country’s main delivery point of Cushing, Oklahoma.
The collapse will affect the US oil sector even as President Donald Trump had gone to great lengths to protect it, including backing moves by Organisation of the Petroleum Exporting Countries (OPEC) and Russia to cut production.
The world’s largest oil producer now face a rapid decline as negative prices indicate how much the problems of the oil market are.
The present situation was largely caused by drop in demand for the product due to the coronavirus pandemic, lockdowns imposed in many of the world’s major economies.
However, not all oil contracts traded in negative territory. The Brent Crude lost 8.9 percent or $2.51 on Monday to sell to $25.57 per barrel.
According to analysts, Brent is a seaborne crude allowing traders to easily ship it to areas of higher demand and move it around the world immediately. Storage tanks at Cushing, however, will be full in May.
Last week forecasts from both OPEC and the International Energy Agency (IEA) already gave a dire outlook for crude demand this year.
In addition to OPEC and its allies trimming production, there is also the possibility on Tuesday that the Railroad Commission of Texas, which regulates the oil-and-gas industry in the state, could move to limit output in the region.
Reports have also suggested that the Trump administration may provide further incentive by offering to pay producers to stop drilling oil.
