In the late hours of Monday, April 20, the oil price took a disastrous dive as it plummeted further down to below $0 a barrel for the first time as the coronavirus pandemic lingers.
Oil futures opened at their lowest point since 1983 in a historic crash that came just a month after analysts warned oil prices might dip into negative territory.
MarketWatch estimated that the May contract for the U.S. oil benchmark soon to expire finished profoundly in $-37.63 a barrel of negative territory. It meant consumers would have to pay buyers to take delivery of crude oil, reflecting an increasing surplus of crude oil and a shortage of space for storage.
Despite hundreds of millions of people all over the world sitting at home to avoid COVID-19 spreading, traveling by car or plane is almost inexistent.
Factor becoming evident in a big lag in manufacturing and other economic activity involving oil, and the reasons for the dramatic crash. It’s not unusual for those still driving these days to see gas prices below $1 per gallon at stations across the Country, but those businesses are left suffering.
While the OPEC Plus countries have reached an agreement to cut demand by more than 9 million barrels of oil per day, the latest crash shows that it will not be sufficient to resolve the oil surplus currently out there.
According to Dow Jones Market Data, the one-day plunge is the highest on record since 1983, and also the lowest point for a contract on record.
According to Staunovo, oil storage facilities are already at risk of overflowing, increasing the possibility that some oil producers in the United States and Canada may start paying consumers to keep their hands off crude. Investors are especially worried about capacity-reaching storage in Cushing, Oklahoma, the key hub in the US.
CNN reported that the June contract CLM20, 4.70%, which is the most actively traded ended down $4.60, or 18.3% at $20.03 a barrel.
Edward Moya, senior market analyst at Oanda said;
“The collapse…is mostly a reflection of traders rolling contracts to June as no one wants to take delivery because storage capacity is getting close to being reached.
“The ever-widening discount for May versus the June contract reflects all the bearish supply and demand drivers that remain permanently in place.”