The drop in prices was triggered by the expiration of West Texas Intermediate (WTI) crude futures in May, which would have left traders stuck with barrels of physical oil in a market with few willing buyers as the coronavirus pandemic continues to wreak havoc on energy demand.
US WTI crude oil for May delivery traded at – $ 2.58 a barrel at 8:07 a.m. GMT, up $ 35.05 from Monday’s close when the contract closed at – 37, $ 63 per barrel.
Negative oil prices are a sign that producers are willing to pay people to take the oil from them.
Brent crude oil, the international standard for crude oil prices, fell more than 26% or $ 6.76 to $ 18.81, its lowest level since 2002.
Global stocks were also dragged into the red on Tuesday, with the MSCI emerging market equity index down 2%, its worst day in nearly three weeks. The currency index fell 0.4%.
In Asia, Japan’s Nikkei fell 1.97% and China’s CSI300 blue-chip fell 1.18%, while the broader Shanghai composite index fell 0.9%.
The fall in the US crude futures contract was exaggerated by the imminent expiration of the oil delivery contract on Tuesday evening in May, when the shortage of storage is expected to be particularly acute.
The more active June contract, which had been well supported before, slipped from over $ 1 to just over $ 18 a barrel. Trading volumes in June were approximately 80 times higher than the contract expiring in May.
“The coming weeks are sure to be interesting for the oil markets,” Suvro Sarkar of DBS Bank told Al Jazeera.
DBS sees the second quarter of 2020 as the trough in oil prices and Sarkar expects WTI futures will continue to move towards zero over the next month.
“We don’t think Brent will follow him all the way. But we wouldn’t be shocked if Brent broke 20 or 10 dollars a barrel in the next few days or weeks, “he said.
Unlike Brent crude shipped internationally, WTI’s first month contracts involve physical deliveries of oil to a specific location, the rapidly filling Cushing, Okhlahoma oil terminal, Explained Sarkar.
Although international storage is more readily available than US storage at this point, Sarkar said: “One has to wonder … if traders can’t access US storage for physical crude deliveries in May, how will they find storage for June? “
The coronavirus pandemic has swept global travel, transportation and economic activity, driving down demand for crude oil. As such, many traders holding oil futures contracts have found themselves with an oversupply of physical oil.
Unfortunately, the options for the Organization of the Petroleum Exporting Countries led by Saudi Arabia and other major oil producers, including Russia – a group known collectively as OPEC + – for further reductions in l offers are limited.
“Further reduce production [government-to-government] the level can barely make too much noise in the short term, and it is not possible for small countries to agree to cut above 25 percent. So the options for the United States and OPEC + are limited in the face of this deep demand hole that we see in 2Q20, “said Sarkar.
OPEC + had previously agreed to cut oil production by a record 10 million barrels a day, although most analysts said the move was insufficient to support oil prices in a market where demand remains weak because of the pandemic.
The American Petroleum Institute is expected to release data at 4:30 p.m. (8:30 p.m. GMT) Tuesday, and the weekly report from the US Energy Information Administration is due at 10:30 a.m. (2:30 p.m. GMT) on Wednesday.
President Donald Trump has said his administration will consider blocking oil imports from Saudi Arabia to protect the US shale oil industry.