The barrel listed in New York, which was still trading at 60 dollars at the start of the year, saw its value melt on Monday. (Photo: 123RF)
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The value of a barrel listed in New York for delivery in May fell below zero on Monday as investors and speculators desperately seek to get rid of some barrels of US oil in a saturated market. Investors are now paying to find a taker.
This contract expiring Tuesday at the close, those who hold it must find physical buyers as soon as possible. But as stocks have already swelled dramatically in the United States in recent weeks, they are forced to sell off their prices to find buyers.
The barrel listed in New York, which was still trading at 60 dollars at the start of the year, saw its value melt on Monday.
In some places in the United States and Canada, barrel prices have even fallen negatively, meaning some people are paying to dispose of their barrels, each containing 159 liters of oil.
The situation should improve in the coming days, however, believe several analysts.
“It is a bit misleading to focus on the May contract,” said Matt Smith, oil market expert for ClipperData. “There are a lot more exchanges on the barrel for delivery in June.”
And the latter resisted much better: it was down about 11% Monday to 22 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.
Still, the oil market has been experiencing sharp drops 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 in 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 plummet when it became clear that the promised cuts would not be enough to offset the collapse in demand.
In this context of an “extremely unbalanced” market, between falling demand and an overabundant supply, “people are rushing to unload themselves” of their oil purchases, noted Craig Erlam from Oanda.
Low demand
“The United States, as a landlocked market, has the biggest storage problems,” said Jasper Lawler, analyst for London Capital Group.
“The demand is so much lower than the supply that reserves could already have reached 70% to 80% of their capacity,” he added.
The U.S. Energy Information Agency said last week that stocks of crude in the world’s largest economy had risen by 19.25 million barrels the previous week, adding to the woes of an overflowing market. already black gold before the COVID-19 pandemic.
Sukrit Vijayakar, analyst for Trifecta Consultants, also points out that US refineries fail to process crude quickly enough, which explains why there are fewer buyers and reserves that are filling up.
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