The coronavirus pandemic has brought the world economy to a halt. Subsequently the demand for oil has all but dried up, as lockdowns across the world have kept people inside. In consequence the US oil producers are expected to pay potential buyers to take their output.
The West Texas Intermediate contract, the benchmark for US oil, for the month of May fell $19.06, or 104.3 per cent, to a discount of 79 cents per barrel at just after 10pm UAE time after touching an all-time low of -$1.43 per barrel.
The June WTI contract is trading more actively at a much higher level of $21.6 per barrel. The spread between May and June was more than $23, the widest in history for the two nearest monthly contracts. Investors bailed out of the May contract ahead of expiry later on Monday because of lack of demand for the actual oil.
That means oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May. As a result, oil firms have resorted to renting tankers to store the surplus supply and that has forced the price of US oil into negative territory.
Thus the coronavirus pandemic has brought world economy to a halt. In this scenario, the US oil price has for the first time in history turned negative, on concerns of an increase in supply to the market, a saturation of storage capacity and subdued demand.