The World's First 'Negative Oil Price' Barely Rebounds... '1 Dollar Per Barrel'

[Asia Economy Reporter Naju-seok] West Texas Intermediate (WTI) crude oil in the United States plummeted into negative territory for the first time ever amid concerns of oversupply. Theoretically, this means that instead of paying to buy crude oil, sellers are actually paying buyers to take the oil. However, in the after-hours over-the-counter market, prices rebounded ahead of the May futures contract expiration, barely recovering to around $1 per barrel.

As of 10:30 a.m. Korean time on the 21st, May delivery WTI was trading at $1.56 per barrel in the over-the-counter market. Previously, WTI closed at -$37.63 per barrel on the New York Mercantile Exchange (NYMEX) the day before. Considering the closing price of $18.27 on the 17th, this represents a 305% plunge. At one point during the session, WTI even dropped to -$40.32 per barrel.

Daniel Yergin, Vice Chairman of IHS Markit, explained, "May delivery WTI is not just dipping slightly; it is screaming out loud."

The crash in oil prices is due to a decrease in demand caused by the novel coronavirus disease (COVID-19), resulting in extracted crude oil piling up without going through refining processes.

In particular, ahead of the May WTI futures contract expiration on the 21st, most futures investors replaced their May contracts with June delivery contracts instead of taking physical delivery of May oil, which caused prices to fall into negative territory.

In fact, June delivery WTI is trading around $21 per barrel. Therefore, after the May futures contract expiration, WTI prices are expected to recover to around the $20 per barrel level.

Bloomberg explained, "The price difference between May and June delivery contracts occurs because there is currently no place to refine or store the oil if it is physically delivered immediately."

[Image source=Yonhap News]

The situation in the United States is reported to be severe. U.S. crude oil is mainly stored in oil storage facilities in Cushing, Oklahoma, and it is forecasted that these storage tanks will be full within the next few weeks. If the storage tanks in Cushing become full, it will be difficult to find additional places to store crude oil.

However, June Brent crude oil, despite significant volatility, has been relatively stable, fluctuating between $25 and $26 per barrel. Brent crude is mostly produced offshore, making it easier to load onto oil tankers, and expectations of increased oil demand from China have also contributed to this stability.

Oil-producing countries such as Saudi Arabia are considering advancing their scheduled production cuts planned for next month due to the sharp drop in oil prices. In the United States, plans to expand the Strategic Petroleum Reserve are being pursued in consultation with Congress. President Donald Trump hinted at the possibility of stockpiling up to 75 million barrels of strategic reserves during a press conference.

This content was produced with the assistance of AI translation services.