The price for a barrel of US crude West Texas Intermediate (WTI) continued its downward spiral on Tuesday following Monday’s historic crash, which saw prices enter negative territory for the first time ever.
WTI plummeted below zero again after popping up briefly to over $1 per barrel earlier on Tuesday. US crude is trying to recover from Monday’s shocking losses, when prices fell as low as -$37.63 per barrel.
The US benchmark was trading at -$3.43 a barrel as of 9:30am GMT.
“What the negative price means is that sellers of oil are actually willing to pay buyers to take delivery of their oil,” Peter C. Earle, research fellow at the American Institute for Economic Research, told RT. “Storage is virtually nonexistent, and both the United States and much of the world is now, possibly for the first time in history, oversupplied.”’
The unprecedented price collapse comes as the Covid-19 pandemic keeps people at home and destroys demand for transportation fuel, which has led to an overload at oil storage facilities. The main US storage hub in Cushing, Oklahoma (the delivery point for US WTI contracts) is now expected to be full within a matter of weeks.
According to analysts polled by Reuters, US crude inventories were expected to rise by about 16.1 million barrels in the week to April 17 after posting the biggest one-week build in history.
Adding to global oversupply, a record amount of oil – some 160 million barrels – is being held on tankers at sea, while traders struggle to find onshore storage space.
The International Energy Agency has warned in its monthly oil report that demand in April could be 29 million barrels per day lower than a year ago, hitting a level last seen in 1995.
“Even as OPEC++ oil production cuts are set to kick in May 1, and supply and inventories should tighten significantly in 2H’20, the next 4-6 weeks are seeing severe storage distress, likely to drive wild price realizations and unusual disconnects, including super contango and negative prices,” Citi analysts wrote in a note to clients seen by CNBC.
Traders are preparing for Tuesday’s expiry of the contract for delivery in May. Contract expiry is traditionally associated with lower than usual trading and more extreme market moves.
Global benchmark Brent also fell sharply, trading more than 14 percent lower at around $22 per barrel.
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