LONDON—The oil market continues its decline as the coronavirus crisis saps demand and producers run out of places to store their excess barrels of crude. U.S. oil prices plunged below $0 a barrel Monday to $-37.63 a barrel, the lowest level since NYMEX opened oil futures trading in 1983, reports CNN.
The selloff can be attributed to several things. The May futures contract for West Texas Intermediate (WTI), the benchmark for U.S. crude, is about to expire, and most investors are focusing on the June contract, thinning out trading volume and feeding volatility, according to UBS analyst Giovanni Staunovo.
The June futures contract for WTI is trading around $22 per barrel, but that’s still sharply lower for the day. The extreme pressure on the WTI contract for May highlights continued concerns about the supply and demand dynamics plaguing the oil market.
“No one in America wants oil in the short term,” Jeffrey Halley of Oanda told clients yesterday.
Saudi Arabia, Russia and other producers attempted to prop up prices with a deal last week to slash production by 9.7 million barrels per day in May and June. That is the deepest cut ever negotiated, yet it isn't expected to soak up the glut caused by evaporating demand for energy.
There is not enough capacity at oil storage facilities, which are at a risk of overflowing. That increases the chance that some oil producers in the United States and Canada could start paying customers to take crude off their hands, according to Staunovo.
Investors are worried about storage reaching capacity in Cushing, Oklahoma, a major hub for crude-oil trading in the United States. Traders can make money by storing crude at Cushing for sale at a higher price in the futures market. Rystad Energy, a consultancy, forecasts that U.S. commercial crude stocks will hit record highs by the end of April and will continue rising into May.
Still, the price of crude oil is only one of the ways that creates price fluctuation in gas. “While spot oil prices have briefly dipped into negative territory, oil prices are just one of several factors that go into the price of a gallon of gas,” said Jeff Lenard, vice president, strategic industry initiatives at NACS. “Roughly half of the cost of a gallon of gas in February 2020 (when gasoline retailed for $2.44 a gallon), was associated with other costs that included refining, distribution and marketing, plus state and federal taxes.”