Yesterday saw an historic day in the global oil market as May’s West Texas Intermediate (WTI) oil contract, which settles today, closed at over minus $37 a barrel, the first negative settlement ever, after posting the biggest ever one-day sell-off of over $55 a barrel. The negative prices mean that producers are effectively paying someone to move their crude before today’s expiration to avoid being physically delivered oil. Whilst the May futures contract settled at minus $37.63 a barrel in New York, the June contract settled at +$20.43, the biggest gap between rolling contracts ever.
The root cause to the plunge in the oil price is ultimately a result of the ongoing supply and demand imbalance. This was brought on by the demand collapse due to the ongoing coronavirus pandemic and the decision taken last month by Saudi Arabia to increase production. As the chronic oversupply overwhelms the world’s crude tanks, pipelines and supertankers, eventually traders were left desperate to avoid having to take delivery of actual oil because nobody needs it and there are fewer places to store it.
As a result of the price crash there are reports that Saudi Arabia and other OPEC members are considering cutting their oil output as soon as possible, rather than waiting until next month’s scheduled meeting when the cartel’s recent agreement to reduce output, brokered by Trump, was due to begin.
Both China and the US are taking advantage of the collapse in oil by adding to their strategic petroleum reserves. Trump said yesterday he would add as much as 75 million barrels of oil to the nation's reserves saying, ‘If we could buy it for nothing, we’re gonna take everything we can get’.