U.S. oil futures entered negative territory

U.S. WTI oil prices have rebounded slightly on Tuesday morning after dropping below zero for the first time in history yesterday when contract prices fell by $55.90 a barrel to end on -$37.63 a barrel.

The WTI futures contract for June closed in positive territory last night though at stood at $20.43 a barrel, which was down 18.4 per cent for the day. The chaos hitting WTI prices is now spilling over into Brent prices on Tuesday which slipped below $20 for the first time in 18 years. Brent Crude is the benchmark used by Europe and the rest of the world.

Pedro Gomez, Head of Oil and Gas at the World Economic Forum commented: "Although today WTI is no longer traded in the “red territory”, the pressure could mount again when the June physical delivery trading window pushes to the end.The current market context is exerting tremendous pressure across the oil and gas industry and those companies with higher break-even prices and smaller balance sheets are more exposed."

Rystad Energy’s Oil Markets Analyst Louise Dickson noted: "Brent is not immune to a negative price possibility. What happened to WTI can happen to any traded commodity, if the forces behind the short are aligned. This explains the negative sentiment around Brent today, which is also falling by a wide margin. Traders have realized the danger and thus the sell-off that is observed today."

The negative U.S. oil future price is a clear indication of the depth of the how low demand for oil is right now and how storage is running out that yesterday saw producers pay buyers to take it oil off their hands.

Louise Dickson added: "The most simple 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. 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 earlier today that there was only 21 million barrels of free storage left."

Ann-Louise Hittle, vice president, Macro Oils, at Wood Mackenzie noted: “WTI May expires tomorrow (April 21) and with adequate storage in Cushing unavailable to those who need it, selling intensified in the May futures contract. This issue is most intense for May WTI because oil demand is at its weakest, with full coronavirus containment measures in place across much of the US."

Hittle added: "Oil supply has not yet been affected enough by either production shut-ins for economic reasons or by the OPEC+ production cuts. With signs of a possible easing in containment measures against Covid-19, the next month’s WTI expiry might not see such an intense selling pressure.”