U.S. oil prices go negative for the first time in history

Texas' middle oil (WTI) led a historic 305 percent drop on Monday and for the first time since statistics began, the price per barrel fell to minus $37.63, with traders very concerned about a drop in crude demand due to the coronavirus pandemic that led to the oil collapse today.



At the end of trading on the New York Mercantile Exchange (Nymex), WTI futures contracts for delivery in May were down $55.90 from the previous session on Friday.

Analysts have recalled that the May contracts will soon expire as a reference index for US oil and from tomorrow it will be necessary to analyse the evolution of the June futures according to their volume of demand. In fact today the June contracts are at $20.43 with a higher volume of demand than the May contracts, specifically five times more.



In any case, investors have burned the bridges of their short-term pessimism, waiting for a reaction from demand in the run-up to June, when they are confident that the economy will recover and oil needs will increase.

In any case, the difference between the May and June contracts, known as the first month and the second month, is now the widest in history, according to Jeff Kilburg of KKM Financial.  "This is a phenomenon due to the expiration of the first month's contract along with the historic drop in oil," he said in an email picked up by CNBC. 



"The collapse (...) is mainly a reflection of the traders who signed contracts up until June, as no one wants to take delivery because storage capacity is nearing completion," Edward Moya, senior market analyst at Oanda East warned in a note. "This is also an important point to understand today: there is no more storage site and the large operations of the US government to accumulate stocks have little room for manoeuvre, so a buyer may get paid to buy barrels, although the volume drops sharply because there is nowhere to store them.



In this regard, the energy consultant Rystad Energy said in a note that the market knows that the stocks of crude oil in the U.S. will be filled very quickly as the refineries continue to reduce their activity "enormously" due to the lack of storage possibilities, especially for unsold gasoline.

"We believe that the commercial stocks of crude oil in the United States will be at unprecedented levels by the end of April," Rystad Energy concluded. 



The coronavirus pandemic has dealt a severe blow to economic activity around the world and has reduced demand for oil. While OPEC and its oil-producing partners reached a historic pact earlier this month to reduce production by 9.7 million barrels per day from May 1, many argue that it will still not be enough to counteract the drop in demand. 

The return to normalcy, at least in terms of economic activity, is expected to help oil prices around the world, especially if they coincide in time with the cuts of about 10 million barrels per day (bpd) agreed by the Organization of Petroleum Exporting Countries (OPEC) and its partners and if non-OPEC countries contribute to the adjustment. 



In this context, gasoline futures contracts expiring in May fell to $0.66 per gallon, and natural gas futures contracts expiring in the same month stood at $1.92 per thousand cubic feet.