The May West Texas Intermediate (WTI) crude oil futures, due to expire Apr. 21, plunged into negative territory at minus $38/bbl—far below the previous all-time front-month contract low of $10.42/bbl set on Mar. 31, 1983.
The price comes amid fears that the key storage center in Cushing, Okla., will soon approach capacity.
For months, there have been warnings about storage hitting max capacity in mid-May. Traders without access to storage can no longer accept volume deliveries as the May contract expires and traders with storage access are happy to short the market.
“It’s like trying to explain something that is unprecedented and seemingly unreal! The simplest explanation for negative oil prices is that midstream players are now paying ‘buyers’ to take oil volumes away as the physical storage limit will be reached. And they are paying top dollar!” said Louise Dickson an oil markets analyst at Rystad Energy.
“That 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. Traders have been gobbling up cheap oil and pumping storage full, and now, in the case of WTI and Cushing, storage has reached a physical limit - we estimated that there was only 21 million bbl of free storage left.”
“There is little to prevent the physical market from the further acute downside path over the near term,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets. “Refiners are rejecting barrels at a historic pace and with US storage levels sprinting to the brim, market forces will inflict further pain until either we hit rock bottom, or COVID clears, whichever comes first, but it looks like the former.”
