US oil prices plunged, falling below $0 a barrel on Monday, which makes it the lowest level since 1983 due to the coronavirus pandemic.
MarketWatch reported that the soon-to-expire May contract for the U.S. oil benchmark finished in negative territory of $-37.63 a barrel.
This means that investors will need to pay buyers to take delivery of crude oil, reflecting a growing glut of crude and a lack of storage space.
With hundreds of millions of people around the world staying at home to curb the spread of the deadly coronavirus, the use of vehicles and airplanes has reduced drastically.
Louise Dickson, oil markets analyst Louise at Rystad Energy said: “It’s like trying to explain something that is unprecedented and seemingly unreal!
“The most simple explanation for negative oil prices is that midstream players are now paying ‘buyers’ to take oil volumes away as the physical storage limit will be reached. And they are paying top dollar!”
According to UBS analyst Giovanni Staunovo, most investors are already focusing on the June contract, thinning out trading volume and feeding volatility.
The June contract for West Texas Intermediate (WTI) is trading around $22 per barrel, but that’s still sharply lower on the day. Brent crude futures, the global benchmark, fell 8% Monday to $25.81 per barrel.
Edward Moya, senior market analyst at Oanda said: “The collapse…is mostly a reflection of traders rolling contracts to June as no one wants to take delivery because storage capacity is getting close to being reached.
“The ever-widening discount for May versus the June contract reflects all the bearish supply and demand drivers that remain permanently in place.”
According to Premium Times, analysts said that record output cuts agreed by OPEC and its allies, OPEC+, are not enough to offset the loss in demand caused by the global crisis.
While the OPEC+ countries reached an agreement to slash production by more than 9 million barrels of oil per day, the latest crash shows it won’t be enough to overcome the surplus of oil currently out there today.
Reports have also suggested that the Trump may provide further incentive by offering to pay producers to keep crude in the ground.