Crude Oil Prices Fall Below Zero As Producers Have Storage Costs, Supply Glut Without Demand

Written by Kevin Mwanza
crude oil
Crude oil prices have fallen below zero as producers deal with storage costs and a supply glut without demand due to coronavirus restrictions and shutdowns. Photo by Ksenia Kudelkina on Unsplash

Crude oil prices of a barrel of benchmark U.S. fell below zero for the first time in history, pushed lower by an unprecedented global energy glut as the coronavirus pandemic halted travel and shutdowns continue to hurt economic activity.

The price of a barrel of crude varies based on factors such as supply, demand, and quality. The supply of fuel has been far above demand since the coronavirus forced billions of people to stop traveling.

The U.S. Energy Information Administration said in mid-April that storage at Cushing, Oklahoma, the heart of the U.S. pipeline network, was about three-quarters full as of April 10. This coupled with reduced demand for the commodity has put pressure on oil prices.

“There’s no available storage anymore so the price of the commodity is effectively worthless,” said Bob Yawger, the New York-based director of futures at investment bank Mizuho Americas. “So when it’s minus a dollar, they’ll pay you a dollar to get it out of there.”

The price on the futures contract for West Texas Intermediate crude that expired on April 21 fell into negative territory — minus $37.63 a barrel – meaning that sellers were actually paying buyers to take the stuff off their hands.

The price of West Texas crude has since risen to $16.98 by April 24 but it is expected to turn negative again.

On the international front, Brent crude prices fell below $16 – a more than two-decade low – as demand slumped. On April 24, Brent crude was valued at $21.90 per barrel. The prices are expected to keep falling as long as the supply glut is not checked.

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Energy ministers from the OPEC and other major oil-producing countries held an unscheduled conference call on April 21 to discuss the collapse but did not agree on any new measures to cut supplies.