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U.S. crude oil prices plummeted sharply on Monday amid the COVID-19 pandemic, falling by nearly 300% and turning negative for the first time in history while practically absent demand has pushed storage facilities to the extreme limits, reports NBC News.
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US oil drops to unprecedented level amid COVID-19
A U.S. benchmark on crude called West Texas Intermediate sank to unprecedented lows of minus $37.63 per barrel by close of the oil market on Monday — a dizzying level that basically means producers will have to pay buyers to take their oil.
Oil due for delivery in May was hardest hit since that futures contract will expire on Tuesday, reports NBC News. The June contract also dropped, however by a much smaller margin of 18%.
UPDATE April 20, 3:30 PM EDT: COVID-19 and social distancing slash US oil
Lockdowns and social distancing measures worldwide have slashed demand to near-zero numbers as a wide proportion of the global industry and travel ground to a painful halt. Even the historic production cut agreement made between OPEC and its affiliated allies couldn't create enough momentum to relieve the surplus, as countries producing oil go on pumping oil ahead of the implementation, due to take effect May 1.
Additionally, ships, tanks, and pipelines are nearly full, which complicates the global calculus for many U.S. producers intending to hold on to their oil until the pandemic subsides — when demand is expected to pick up again.
The oil market crash is the latest economic sector to receive serious — albeit temporary — damage amid the COVID-19 outbreak. Before the upcoming OPEC deal, prices had plunged to levels not seen since 1991 and were struggling to recover amid the global paralysis of the world's economy.
The state of the energy economy is forcing U.S. companies into decisions they'd rather not make. They are seriously struggling to stay afloat as plummeting prices reduce their competitive edge — leading to greater layoffs.
"Even if we get the COVID-19 shelter-in-place protocols lifted by April 30, and we start to see some pop in demand, you are going to have so much oil sitting in tanks that, regardless of production cuts, you are still looking at a massive glut of oil going into the third quarter [of 2020]," said Stephen Schork, The Schork Report energy newsletter founder, to NBC News.
As the global economy starves from the greatest lack of consumer demand across nearly every industry, the energy sector is racing to find solutions for a surplus in crude oil, as the COVID-19 outbreak forces much of the world community into lockdown.
This is breaking news, so be sure to return here for the latest developments.