U.S. crude oil futures collapsed below $0 on Monday for the first time in history amid the coronavirus pandemic last night.
The price of US crude oil crashed from $18 a barrel to -$38 in a matter of hours, as rising stockpiles of crude threatened to overwhelm storage facilities and forced oil producers to pay buyers to take the barrels they could not store.
Louise Dickson, oil markets analyst at Rystad Energy, told Reuters: “It’s like trying to explain something that is unprecedented and seemingly unreal.
“Pricey shut-ins or even bankruptcies could now be cheaper for some operators, instead of paying tens of dollars to get rid of what they produce.”
This morning prices rebounded above above zero, with the US benchmark West Texas Intermediate for May changing hands at $1.10 a barrel after closing at -$37.63 in New York on Monday, the Guardian reported.
The rapid market decline of recent weeks had reached fever pitch on Monday as traders reached their last day to trade oil for delivery in May before the contracts expire.
The deadline triggered a collapse in prices as desperate oil traders with more crude than storage space were forced to take action.
The historic collapse happened only a week after OPEC and allies led by Russia agreed on to a record cut in output to prop up oil prices in an unprecedented deal.
Brett Fleishman, from climate campaign group at 350.org, said the collapse of oil prices is ‘another powerful example of how fossil fuels are too volatile to be the basis of a resilient economy.’
Mr Fleishman commented: “We are experiencing an unparalleled upending in our economies.
“And it is time for the fossil fuel industry to recognise that, from now on, the cheapest and best place to store oil is in the ground.
“While this recession shows us that we desperately need sustainable, resilient, and stable economic systems, based on renewable, accessible and just energy sources, the fossil fuel industry is not only trying to profit off of the current chaos, but continues to drive us further into climate breakdown.”
Oil prices began to rise again on Tuesday as oil traders turn their attention to trading oil for delivery in June.
The US oil market – known in the industry as the West Texas Intermediate price – is expected to trade above $20 a barrel this week, recovering from its slump into negative territory. The international oil price benchmark, known as Brent crude, is trading at around $26 a barrel.
The recovery is expected to pick up over the second half of the year as tight restrictions on travel to help curb the spread of the virus are lifted, raising demand for fuels and oil.
At the same time supply is expected to dwindle due to the historic deal to limit oil production and the financial collapse of weaker oil companies.
However, most analysts believe that oil prices will fail to reach the same price levels recorded at the beginning of the year before the outbreak.
Brent crude reached highs of almost $69 a barrel in January before plummeting to less than $23 a barrel at the end of March.
Many market experts predict the price of Brent will remain below $50 a barrel this year.