The value of a barrel listed in New York for delivery in May fell below zero Monday, April 20, as investors and speculators are desperate to get rid of some barrels of American oil in a saturated market. Investors are now paying to find takers.
This contract expiring Tuesday at the close, those who hold it must find physical buyers as soon as possible. But as stocks have already swelled enormously in the United States in recent weeks, they are forced to sell their prices to find takers.
The barrel listed in New York, which was still trading at $ 60 at the start of the year, saw its value melt on Monday. At the end of a hellish session, it finished for the first time since the creation of this contract in 1983, under zero dollar, to – 37.63 dollars, the investors and speculators being ready to pay to get rid of it for lack storage, a situation that has also occurred in other places in the United States and Canada.
The situation is expected to improve in the coming days, say several analysts. "It is a bit misleading to focus on the May contract", underlines Matt Smith, an oil market expert for ClipperData. "There are a lot more exchanges on the barrel for delivery in June. " And the latter held up much better: it was moving down about 11% Monday to 22 dollars. The barrel of Brent from the North Sea, the European benchmark listed in London, was also much less affected since it yielded only 6%, at around 26 dollars.
"People rush to discharge themselves"
Still, the oil market has been plummeting for weeks, as travel restrictions in many countries and paralyzed economies due to the coronavirus crisis have dampened demand. Investors expect even worse, at a time when a deep recession is looming around the world.
On the supply side, the market was inundated with low-cost oil after prominent member of the Organization of the Petroleum Exporting Countries (OPEC), Saudi Arabia, launched a price war with Russia to gain maximum shares. Steps. The two countries put an end to their dispute at the beginning of the month by agreeing, with other countries, to reduce their production of nearly 10 million barrels per day to stimulate the markets touched by the virus.
But prices continued to plummet when it became clear that the promised reductions would not be enough to offset the collapse in demand. In this context of an unbalanced market, between the fall in demand and an overabundant supply, "People are rushing to discharge themselves" of their oil purchases, said Craig Erlam, an analyst at Oanda.
"The United States, as a landlocked market, has the biggest storage problems"added Jasper Lawler, analyst for London Capital Group. "The demand is so much below the supply that the reserves could already have reached 70% to 80% of their capacities", he added.
The US Energy Information Agency said last week that crude stocks in the world's largest economy had increased by 19.25 million barrels the previous week, adding to market woes which was already overflowing with black gold before the Covid-19 pandemic.
