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What is Lower Than Zero? COVID-19 Impacts Drive Oil Futures to the Lowest Price in History of the Industry – WTI Falls to -$37.63 Per Barrel

What is Lower Than Zero? COVID-19 Impacts Drive Oil Futures to the Lowest Price in History of the Industry – WTI Falls to -$37.63 Per Barrel

April 21, 2020



Negative oil pricing has become a reality—and with it comes the lowest price (in real terms) in the history of the oil industry. The previous record-low price—East Texas crude at $0.10/bbl in 1931 ($1.70 in 2020 terms)—is now in distant second place as West Texas Intermediate (WTI) futures settled at negative 37.63/bbl today.

Today’s previously unimaginable record low reflects a massive physical supply surplus, tomorrow’s expiration of the May 2020 WTI contract, and the high cost of scarce crude oil storage capacity. The June 2020 contract, which will soon take over as the front month, settled at $20.43/bbl today, suggesting that oil will not be worthless at that time. Trading volumes for the June contract were five times higher than the soon-to-expire May contract. While some may see today’s negative pricing as a quirk of the futures market calendar, it is an ominous sign.

“There is no need to consult old inflation tables to calculate the lowest price in real terms in the history of the oil industry. Today’s first ever negative oil price displaces the previous low of $0.10/bbl in 1931. Some may dismiss Monday’s fall into negative WTI prices as a quirk of the futures market on the last day before a contract ended. But the fact that prices went this low at all reflects brutal market forces that will not disappear with the expiration of a single monthly contract.” – Jim Burkhard, vice president and head of oil markets, IHS Markit

  • Negative pricing reflects brutal market forces that are forcing supply to adjust to a much lower level of world oil demand. Very low prices combined with a lack of crude oil storage capacity are leading to forced production cuts. If you cannot sell oil and cannot store it, then you cannot produce it.
  • More words and action are likely to come from major oil-producing governments. It remains to be seen what those actions could be. But governments do things they would not normally consider when conditions become intolerable.
  • Beyond the second quarter of this year, we anticipate that “stay at home” orders will ease and production cuts will diminish the severe global oil supply surplus. But until then, emergency conditions exist in the oil industry owing to the massive demand collapse.

“Early trading for the June 2020 WTI contract was above $20 per barrel Monday, suggesting that oil will not be worthless for long. But emergency conditions—especially lack of places to store oil—will remain until stay-at-home orders ease and production cuts can diminish the severe oil supply surplus. Production cuts and shut-ins could remove as much as 17 MMb/d of supply from the market this spring.” – Jim Burkhard, vice president and head of oil markets, IHS Markit

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