US oil price back above zero after historic plunge

US oil price back above zero after historic plunge

The price of US oil clawed back above zero on Tuesday after plunging into negative territory for the first time as the coronavirus pandemic crushed demand in global energy markets.

West Texas Intermediate for delivery next month was fetching $0.14 a barrel in morning trading in Europe after closing in the previous session at -$37.63, meaning that producers were paying buyers to take oil off their hands given limited access to storage in the US.

At one point on Monday, producers were paying more than $40 a barrel to get rid of their oil. A barrel of WTI crude cost $18.27 on Friday.

The negative prices were the latest sign of the crisis gripping the oil sector, with lockdowns implemented by authorities to smother the coronavirus outbreak having cut demand for crude by as much as a third.

Crude prices have also been hit hard by fears of a deep global recession. The number of Covid-19 infections around the world neared 2.5m as of Tuesday, according to data from Johns Hopkins University, with more than 170,000 people dead.

If global storage worsens more quickly, Brent could chase WTI down to the bottom

Tuesday marks the final trading day of WTI futures contracts for delivery in May. Contracts for delivery in June were up 4.9 per cent at $21.43 in Asia trading, supported by hopes the worst of the demand erosion could ease by then if lockdowns and travel bans were loosened. 

But traders warned the June contract could soon come under pressure as well.

“The Covid-induced evaporation in demand will keep the oil market under pressure,” said Tai Hui, chief Asia market strategist at JPMorgan Asset Management. Even if containment measures ease in the coming weeks, “the world is going to be awash in oil for some time”, he added.

Warren Patterson, head of commodities strategy at ING, said that “storage this time next month will be even more of an issue . . . so in the absence of a meaningful demand recovery, negative prices could return for June”.

Brent crude, the international benchmark that tracks seaborne product that is more easily shipped to areas of higher demand, was down 0.6 per cent at $25.43 a barrel after dropping almost 9 per cent on Monday.

Analysts at Citi warned that “if global storage worsens more quickly, Brent could chase WTI down to the bottom”. They added that WTI would remain volatile thanks to the continued difficulty of storage for US oil.

Equities were broadly lower in Asia, with futures tipping US stocks to fall 0.4 per cent when trading on Wall Street begins later. The FTSE 100 was expected to shed 1.8 per cent.

Japan’s benchmark Topix was down 1.4 per cent and Australia’s S&P/ASX 200 lost 1.8 per cent, while China’s CSI 300 fell 1.7 per cent. Hong Kong’s Hang Seng was down 2.3 per cent, with the Asian financial hub announcing it would extend social distancing measures for another two weeks.

On Wall Street overnight, the S&P 500 closed down 1.8 per cent, partly because of weakness in energy shares but also due to increased pessimism over the time it will take for countries to emerge from coronavirus-induced lockdowns.

Editor’s note

The Financial Times is making key coronavirus coverage free to read to help everyone stay informed. Find the latest here.

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