The value of a barrel listed in New York for delivery in May fell below zero on Monday as investors and speculators desperately seek to get rid of some barrels of US oil in a saturated market. 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 are forced to sell off their prices to find buyers.
The barrel listed in New York, which was still trading at 60 dollars at the start of the year, saw its value melt on Monday.
In some places in the United States and Canada, barrel prices have even fallen into the negative, meaning some people are paying to dispose of their barrels, each containing 159 liters of oil. Oil listed in New York for delivery in May closed at -37.63 dollars a barrel on Monday evening.
The situation should improve in the coming days, however, believe several analysts.
Production reduction
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.
On the supply side, the market was inundated 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 obtain maximum market share. The two countries ended their dispute earlier this month by agreeing with other countries to cut production by nearly 10 million barrels a day to boost 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.
« The United States, as a landlocked market, has the biggest storage problems ”Says Jasper Lawler, analyst for London Capital Group. ” Demand is so much lower than supply that reserves may already have reached 70% to 80% of their capacity “, he added.
Sukrit Vijayakar, analyst for Trifecta Consultants, also points out that US refineries fail to process crude quickly enough, which explains why there are fewer buyers and reserves that are filling up.
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