Coronavirus lockdowns have destroyed demand for oil but countries continue to produce, overwhelming storage facilities.
A key American oil benchmark, West Texas Intermediate, fell by more than 80% on Monday as global oil markets continue to grapple with a pandemic-driven collapse in demand.
At the start of 2020, a barrel of WTI cost around $60.
Shortly after 1:40 p.m. ET on Monday, a barrel was trading for less than $2 — the lowest price the WTI futures market has ever seen.
The plummeting price of WTI is driven by a trading contract deadline; oil traders have until Tuesday to sell off the current futures contract. Other types of crude, without a deadline coming up that quickly, have not dropped nearly so sharply.
But in general, crude oil prices are very low and continue to fall. Brent, an international benchmark, is in the mid-$20s and fell more than 6% on Monday.
Oil-producing countries and companies are trying to reduce their output, but they can’t keep pace with the extremely rapid drop in global demand, as the world economy hits the brakes.
That’s creating a massive oversupply of oil and raising concerns about where buyers will be able to physically store it all.
Many investors appeared to have been misled by what appeared to be a very low oil price and to have failed to take into consideration the expiry of oil future contracts, which takes place each month, Commerzbank analyst Carsten Fritsch said.
When a futures contract expires, traders must decide whether to take delivery or roll positions into an upcoming contract. Usually, this process is relatively uncomplicated, but the May contract’s decline reflects worries about an inordinate glut of supply.
The volume of oil held in US storage, especially at the Cushing delivery point for the WTI contract in Oklahoma, is rising as refiners throttle back activity in the face of weak demand.
Crude stockpiles at Cushing rose 9 per cent in the week to April 17, totalling around 61 million barrels, market analysts said, citing a Monday report from Genscape.
Oil in floating tanker storage is also estimated at a record 160 million barrels.
Resources: Reuters and npr.org