The price on the futures contract for West Texas crude fell into negative territory yesterday (April 20, 2020), at minus $37.63 a barrel. In fact Bloomberg has reported that sellers were actually paying buyers to take the crude off their hands. 

Michael Tran, Managing Director of global energy strategy at RBC Capital Markets, said: “There is little to prevent the physical market from the further acute downside path over the near term. Refiners are rejecting barrels at a historic pace and with US storage levels sprinting to the brim, market forces will inflict further pain until either we hit rock bottom, or COVID clears, whichever comes first, but it looks like the former.”

Furthermore, the price on the futures contract due a month later settled at $20.43 per barrel – the gap between those two contracts is the biggest ever recorded.

Daniel Yergin, Vice Chairman of IHS Markit, added: “The May crude oil contract is going out not with a whimper, but a primal scream.”

Since the start of the year, oil prices have plunged after the compounding impacts of the coronavirus and a breakdown in the original OPEC+ agreement. With no end in sight, and producers around the world continuing to pump, that’s causing a fire-sale among traders who don’t have access to storage.

Even before this news though, buyers in Texas were offering as little as $2 a barrel last week for some oil streams. Elsewhere, in Asia, bankers are increasingly reluctant to give commodity traders the credit to survive as lenders grow ever more fearful about the risk of a catastrophic default.

In New York, West Texas Intermediate for May delivery dropped as low as negative $40.32 a barrel. This is far below the lowest level previously seen in continuation monthly data charts since 1946, just after World War II, according to data from the Federal Reserve Bank of St. Louis. Brent declined 8.9% to $25.57 a barrel.

Crude stockpiles at Cushing, America’s key storage hub and delivery point of the West Texas Intermediate contract, have jumped 48 per cent to almost 55 million barrels since the end of February. The hub had working storage capacity of 76 million as of Sept. 30, according to the Energy Information Administration.

Crude explorers shut down 13 per cent of the American drilling fleet last week. But while production cuts in the US are gaining pace, it isn’t happening quickly enough to avoid storage filling to maximum levels, according to Paul Horsnell, Head of Commodities at Standard Chartered.

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21st April 2020