Prices of U.S. crude oil futures turned negative for the first time ever on Monday, at one point plunging roughly 300% as the ongoing coronavirus pandemic has frozen demand for – and fueled an oversupply of – domestic oil.
Some West Texas Intermediate contracts – widely viewed as a key benchmark for American oil, as opposed to Brent crude contracts that are traded more internationally – were trading lower than negative $40 per barrel on Monday. It’s a drop that was fueled in part by short-term delivery concerns. The WTI May contracts that dove into negative territory will expire on Tuesday. Delivery of that oil would take place while much of the U.S. economy is still on lockdown to guard against the spread of the coronavirus.
Looking further out, WTI futures contracts for June and July have yet to fall below zero – perhaps a sign of optimism that market conditions will improve in the months ahead. But in the short term, the U.S. is carrying a significant oil oversupply that producers and purchasers still need to work their way through
“What the collapse in the May contract is reflecting is the horrible, super-glutted physical market conditions. You can’t give this stuff away,” John Kilduff, founding partner at Again Capital, said Monday during an appearance on CNBC’s “The Exchange.”
The May WTI contracts’ freefall comes in spite of a historic global oil production agreement reached earlier this month by the Organization of Petroleum Exporting Countries and a handful of fellow oil-producing allies. The international coalition agreed to cut production by nearly 10 million barrels per day starting next month, with the goal of bringing greater price stability to an oil market and broader world economy that have both been thrown into turmoil by the spread of the coronavirus pandemic.
More than 2.4 million people worldwide are confirmed to have been infected with the coronavirus, according to the latest data from Johns Hopkins University. More than 168,000 people have died. In the U.S. alone, more than 766,000 have been infected and more than 40,000 have died.
After the drop in oil futures, the Dow Jones Industrial Average followed suit, closing down more than 2.4%. The Standard & Poor’s 500, meanwhile, ended Monday down nearly 1.8%. Oil volatility has weighed on international investment markets in recent weeks, though Wall Street’s performance on Monday wasn’t nearly as negative as the WTI May futures performance.
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