Oil futures plunge below zero as prices collapse to two-decades low on lack of demand

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Oil prices collapsed to more than two-decade lows as traders grow concerned that storage facilities are reaching their limits, while equities were mixed, with some support coming from signs that the coronavirus may have peaked in Europe and the United States.

The May futures contract for West Texas Intermediate (WTI), which represents the US’ shale oil, traded in negative for the first time, after falling more than 136 per cent. Intra-day. At one point the May contract for WTI crude touched negative 37.63 per barrel. Which means nobody wants physical delivery of WTI for May, and with storage options dwindling in some places, traders liquidated their positions, selling contracts at crazy discounts.

Since the May contract was expiring soon, nobody wanted to be left holding the bag. Unable to actually accept physical delivery, traders ended up paying someone to take oil off of their hands. That is why it reached -37.63 dollars a barrel. 

Analysts feel this month’s agreement between top producers to slash output by 10 million barrels a day was having little impact on the oil crisis because of lockdowns and travel restrictions that are keeping billions of people at home.

In India, the April contract of crude oil on the Multi Commodity Exchange (MCX) expired on Monday, witnessing a 30.71 per cent fall and ending at Rs 995 per barrel. It is the first time the price of a monthly oil contract in the MCX expired in three digits. The MCX futures for May expiry closed 12.02 per cent lower at Rs 1,771 per barrel. This is because MCX futures are based on WTI.

Over the last few days in the international market, following reports of storages for oil in the US filling up sharply because of the decreased demand amid lockdown, oil prices have dipped. At 12 midnight IST, WTI was trading at -$6.65 per barrel, nearly $24.92 or 136.40 per cent down. Brent crude, the domain of Opec+, was trading at $25.70 a barrel, $2.28 or 8.48 per cent down.

Refiners in the United States—and elsewhere in the pandemic stricken world—have begun shutting down facilities as the supply of fuels continues to exceed demand by a growing margin. The pandemic is destroying demand, and this could continue for months depending on how the infections curve develops.

Production is also falling as selling prices become prohibitively low for many oil producers. The size of the cuts is being estimated at 1 million bpd, in the US alone.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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