For the first time in history Monday, oil prices plunged below zero as demand for energy collapses amid the coronavirus pandemic and traders don’t want to get stuck owning crude with nowhere to store it.
Benchmark U.S. crude oil fell $55.90, or more than 300%, to settle at negative $37.63 a barrel Monday. Brent crude oil, the international standard, dropped $2.51 to close at $25.57 a barrel.
Wholesale gasoline fell 4 cents to 67 cents a gallon. Heating oil dropped 7 cents to 88 cents a gallon. Natural gas rose 17 cents to $1.92 per 1,000 cubic feet.
The dramatic drop in prices means that some producers could begin paying customers to take oil off their hands, according to a report by CNN.
Later Monday, President Donald Trump said the government will buy as much as 75 million barrels of oil for the Strategis Petroleum Reserve, calling Monday's historic nosedive "a level that's very interesting to a lot of people."
Stocks also slipped on Wall Street Monday, with the Dow Jones Industrial Average dropping nearly 600 points, and the S&P 500 slipping to a 3.7% loss, the latest in a dismal 2020 that has caused their prices to nearly halve.
Much of the drop into negative territory was chalked up to technical reasons — the May delivery contract is close to expiring so it was seeing less trading volume, which can exacerbate swings. But prices for deliveries even further into the future, which were seeing larger trading volumes, also plunged. Demand for oil has collapsed so much due to the coronavirus pandemic that facilities for storing crude are nearly full.
Tanks could hit their limits within three weeks, according to Chris Midgley, head of analytics at S&P Global Platts.
Traders are still paying $20.43 for a barrel of U.S. oil to be delivered in June, which analysts consider to be closer to the “true” price of oil. Crude to be delivered next month, meanwhile, is running up against a stark problem: traders are running out of places to keep it, with storage tanks close to full amid a collapse in demand as factories, automobiles and airplanes sit idled around the world.
Tanks at a key energy hub in Oklahoma could hit their limits within three weeks, according to Chris Midgley, head of analytics at S&P Global Platts. Because of that, traders are willing to pay others to take that oil for delivery in May off their hands, so long as they also take the burden of figuring out where to keep it.
“Almost by definition, crude oil has never fallen more than 100%, which is what happened today,” said Dave Ernsberger, global head of pricing and market insight at S&P Global Platts.
“I don’t think any of us can really believe what we saw today,” he said. “This kind of rewrites the economics of oil trading.”
Also exacerbating the volatility is that few traders are buying and selling U.S. oil to be delivered in May. They won’t even have the opportunity to do so after Tuesday, when trading contracts for it expire and the earliest delivery they’ll be able to buy is for June.
Brent crude, the international standard, fell nearly 9% to $25.57 per barrel.
Benchmark U.S. crude oil for June delivery, which shows a more ”normal” price, fell 14.8% to $21.32 per barrel, as factories and automobiles around the world remain idled. Big oil producers have announced cutbacks in production in hopes of better balancing supplies with demand, but many analysts say it’s not enough.
“Basically, bears are out for blood,” analyst Naeem Aslam of Avatrade said in a report. “The steep fall in the price is because of the lack of sufficient demand and lack of storage place given the fact that the production cut has failed to address the supply glut.”
Halliburton swung between gains and sharp losses, even though it reported stronger results for the first three months of 2020 than analysts expected. The oilfield engineering company said that the pandemic has created so much turmoil in the industry that it “cannot reasonably estimate” how long the hit will last. It expects a further decline in revenue and profitability for the rest of 2020, particularly in North America.
Brent crude, the international standard, was down $1.78 to $26.30 per barrel.
In the stock market, the mild drops ate into some of the big gains made since late March, driven lately by investors looking ahead to parts of the economy possibly reopening as infections level off in hard-hit areas. Pessimists have called the rally overdone, pointing to the severe economic pain sweeping the world and continued uncertainty about how long it will last.
The Dow Jones Industrial Average was down 364 points, or 1.5%, to 23,887. The Nasdaq was down 0.1%.
— ArLuther Lee contributed to this report for The Atlanta Journal-Constitution.
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