The market price for West Texas Intermediate crude oil plunged deep into negative pricing for the first time in history on Monday, closing at minus US$37.63 as the fallout from the spread of the coronavirus leaves the world with more oil than it needs and nowhere to keep it.
The destruction of global demand and a supply glut has crude sloshing toward the tops of North American storage tanks. Monday’s turmoil put the market in an extraordinary position in which desperate investors who agreed in futures contracts months ago to pay a set price for crude in May so they could resell it at a profit, would now have to pay buyers to take it off their hands or find a place to store it. West Texas Intermediate is the benchmark for North American oil prices.
Worldwide fuel consumption has fallen by a third as billions of people around the world stay home. Although the Organization of the Petroleum Exporting Countries (OPEC) and allies agreed last week to a 9.7 million barrel a day (b/d) production cut, it won’t take effect until May – too late to prevent a massive storage glut.
When a futures contract expires, traders must decide whether to take delivery of the oil to resell or roll their positions into another futures contract for a later month. Usually, this process is relatively uncomplicated, but now, investors have very few customers for the oil.
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