The value of a barrel listed in New York for delivery in May fell below zero on Monday at the end of a hellish session, with investors desperate to dump some barrels of U.S. oil in a saturated market and ready to pay to find a taker.
-37.63 dollars
As this contract expires on Tuesday at the close, those who hold it must find physical buyers as soon as possible. But as stocks have already swelled enormously in the United States in recent weeks, they have been forced to discount their prices to convince buyers. The 159-liter barrel of New York-listed crude oil, which was still trading at $ 60 earlier in the year and $ 18.27 Friday night, finally ended at -37.63. It had never fallen below 10 dollars since the creation of this contract in 1983.
A sharply declining market with the various confinements
Prices per barrel had already fallen into the negative in some places in the United States and Canada. However, the situation should improve in the coming days, believe several analysts. “It is a bit misleading to focus on the May contract,” said Matt Smith, oil market expert for ClipperData. “There is a lot more trade on the barrel for delivery in June.” And the latter resisted a little better: it fell 18% Monday to finish at 20.43 dollars. The barrel of Brent from the North Sea, a European benchmark listed in London, was also much less affected since it only yielded 6%, to around 26 dollars.
Still, the oil market has experienced sharp falls for weeks as travel restrictions in many countries and the paralysis of many economies due to the coronavirus crisis have melted demand. And investors expect even worse as a deep recession looms around the world.
A market flooded by supply, despite an OPEC agreement
On the supply side, the market was flooded with low-cost oil after Saudi Arabia, a prominent member of the Organization of the Petroleum Exporting Countries (OPEC), launched a price war with Russia to gain maximum share. Steps. The two countries ended their dispute earlier this month by agreeing, along with other countries, reduce their production by nearly 10 million barrels per day to stimulate markets affected by the virus.
But prices continued to plummet when it became clear that the promised cuts would not be enough to offset the collapse in demand. In this context of an “extremely unbalanced” market, between falling demand and an overabundant supply, “people are rushing to unload” their oil purchases, noted Craig Erlam from Oanda.
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