Record Low: US Oil Price Below Zero

October 28, 2021 by No Comments

For the first time in the history of oil trading, the oil price has turned negative. US oil traded as low as $40 a barrel Monday night. Late Monday night, the price was minus $38.40 (-35.36 euros).

Although it is only about the US oil price, it marks a phase in the oil market where everything is turned upside down. Monday evening money could be made by buying oil. And vice versa, American producers lost money with every barrel that came on the market.

The American oil price (West Texas Intermediate, WTI) had been under heavy pressure all day at 11 to 12 dollars per barrel (of 159 liters), but around 6 p.m. Dutch time suddenly started a dive that lasted three hours. Many analysts did not even believe that oil prices could turn negative. Norwegian analysis firm Rystad called the negative prices “unique and almost unreal”.

The extremely low price is partly the result of the ongoing oil crisis that is also hurting the oil sector in the United States, with the US market being more sensitive to rising inventories than those on other continents. The big blow came just on Monday, due to the monthly rhythm of the American market, with contracts expiring on Tuesday. “This is a result of the extreme oversupply in the short term,” said energy economist Hans van Cleef of ABN Amro.

Brent oil fell 7 percent

The negative price remained a US affair on Monday. The world’s most important benchmark for oil, the Brent oil price, fell just 7 percent on Monday to $26.

The oil market has been struggling with a colossal oversupply since the start of the corona crisis. The International Energy Agency (IEA) estimates that global oil demand this month is 29 million barrels per day lower than before the crisis, when 100 million barrels per day went through worldwide.

Over the Easter weekend, the oil cartel OPEC and Russia agreed to limit production by 9.7 million barrels per day from May. That was a unique measure, but as expected, those agreements did not restore the oil price.

Due to the surpluses, global oil stocks are still rising rapidly, including in the United States. This is causing market turmoil, with some analysts predicting that the central US oil storage facility would fill up as early as May.

That fear that oil had nowhere to go erupted on Monday with the expiration of futures contracts. Parties that had concluded contracts to buy oil in May (so-called futures), now want to hold off the delivery, and are massively converting their contract to June. The oil market in the US threatens to become congested. The inland location of the US central storage facility, in the state of Oklahoma, makes it difficult to dispose of oil in tankers.

Due to the low oil price, oil wells on the US mainland are being shut down at a rapid pace. There were 529 active shale oil and gas wells on Friday, down nearly half from a year ago.

The US sector contracted as early as the second half of 2019. Now that money has to be paid to pump oil, there is a good chance that more extraction companies in the US will stop working.

The exchange rate of the international oil companies remained reasonably stable on Monday despite the fall in the WTI price. Shares in the American groups ExxonMobil and Chevron were 4 to 5 percent cheaper. At their European competitors BP, Total and Shell, the share price fell below 1 percent.

This article was updated on Monday, April 20 at 10:45 PM with the oil price at that time.

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