Oil futures collapsed to below zero for the first time ever as the deepening economic turmoil caused by the coronavirus crisis left traders desperate to avoid taking delivery of physical crude.
In an unprecedented day of trading, the price for the May contracts wiped out all value, breaking every low for oil prices since 1946.
The exchange where WTI futures trade said the contract would be allowed to price below zero. The extreme move showed just how oversupplied the US oil market has become with industrial and economic activity grinding to a halt as governments around the globe extend shutdowns due to the swift spread of the coronavirus.
An unprecedented output deal by OPEC and allied members a week ago to curb supply is proving too little too late in the face a one-third collapse in global demand.
“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. Big oil-producing countries have agreed to cut production to help balance supplies with demand, but many analysts say the cuts are not sharp enough to lift prices.
A price war between Saudi Arabia and Russia had accelerated the slide prior to the production deal, hurting US shale producers. And storage capacity is becoming scarce in the United States, with the main WTI facilities in Cushing, Oklahoma filling up.
Wall Street was trading lower amid the turmoil on oil markets, with the Dow down 1.3 percent to 23,930.97.
The broad-based S&P 500 lost 0.8 percent to 2,851.58, while the tech-rich Nasdaq dipped 0.1 percent to 8,641.94.
Oil company shares were predictably battered in the downturn, with Chevron down 1.8 percent and ExxonMobil losing 3.2 percent.
(With AFP and Bloomberg)