In New York, the price of a barrel drops below zero dollars (against 60 dollars at the start of the year)

The value of a barrel listed in New York for delivery in May fell below zero on Monday, April 20 at the end of a hellish session, with investors desperate to get rid of some barrels of U.S. oil in a saturated market and being ready to pay to find a taker.

As this contract expires on Tuesday at the close, those who hold it must find physical buyers as soon as possible. But as stocks have already swelled enormously in the United States in recent weeks, they have been forced to discount their prices to convince buyers.

“We must take advantage of this crisis to get out of fossil fuels”

-37,63 dollars

The 159-liter barrel of New York-listed crude oil, which was still trading at $ 60 earlier in the year and $ 18.27 Friday night, finally ended at -37.63. It had never fallen below 10 dollars since the creation of this contract in 1983.

Prices per barrel had already fallen into the negative in some places in the United States and Canada. The situation should improve in the coming days, however, believe several analysts. Matt Smith, oil market expert for ClipperData, points out:

“It is a bit misleading to focus on the May contract. There is a lot more trade on the barrel for delivery in June. “

And the latter resisted a little better: it fell 18% Monday to finish at 20.43 dollars.

The barrel of Brent from the North Sea, a European benchmark listed in London, was also much less affected since it only yielded 6%, to around 26 dollars.

Heavy falls

Still, the oil market has experienced sharp falls for weeks as travel restrictions in many countries and the paralysis of many economies due to the coronavirus crisis have melted demand. And investors expect even worse as a deep recession looms around the world.

On the supply side, the market was inundated with low-cost oil after Saudi Arabia, a prominent member of the Organization of the Petroleum Exporting Countries (OPEC), launched a price war with Russia to gain maximum share. Steps.

The two countries ended their dispute earlier this month by agreeing with other countries to cut production by nearly 10 million barrels a day to boost markets affected by the virus. But prices continued to tumble when it became clear that the promised cuts would not be enough to offset the collapse in demand.

In this market context “Extremely unbalanced”, between the fall in demand and an overabundant supply, “People rush to unload themselves” their oil purchases, noted Craig Erlam of Oanda.

Low demand

“The United States, as a landlocked market, has the biggest storage problems”, added Jasper Lawler, analyst for London Capital Group, adding:

“The demand is so much lower than the supply that reserves could already have reached 70% to 80% of their capacity. “

The EIA, the US energy news agency, said last week that crude stocks in the world’s largest economy had risen by 19.25 million barrels the previous week, adding to the woes of a market that was already overflowing with black gold before the Covid-19 pandemic.

Sukrit Vijayakar, analyst for Trifecta Consultants, also points out that American refineries fail to process crude quickly enough, which explains why there are fewer buyers and reserves that are filling up.

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