US oil producers are paying buyers $37.63 to take the surplus off their hands.
Rabat – The price of US oil has entered the negatives thanks to a drop in global oil demand as lockdowns persist due to the spread COVID-19.
The price of a barrel of West Texas Intermediate (WTI), the benchmark for US oil, fell by 321% to hit a low of minus $37.63 a barrel for the first time in history.
The global lockdown has caused a tremendous drop in global oil demand, prompting oil firms to rent tankers to store their surplus.
Fearing that storage capacity could flood by May, oil producers are have resorted to paying buyers to take surplus oil off their hands.
Meanwhile, the price of the European and international benchmark, Brent Crude, only dropped by 8.9% to $25.57 a barrel.
David Winans, director at US Investment Grade Credit Research, PGIM Fixed Income, said that oil prices will vary depending on the COVID-19 pandemic’s development.
“Today’s price move feels like oil is passing a kidney stone. A very painful move but it can’t last for long, since producers are switching off wells as we speak,” Winans said.
“The path for oil prices is going to follow the path of this virus. Until demand shows some sign of life, oil prices will likely remain on life support.”
On April 13, the Saudi-led Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, agreed to cut oil production by 20% to roughly 20 million barrels per day.
Earlier in March, Saudi Arabia and Russia, the oil largest oil-producing countries, failed to agree on cutting production and engaged in a price war.
After the failed meeting, Saudi Arabia decided to increase production by 1.5 million barrels per day, reducing prices by $8 a barrel in a bid to retake market share and attract new customers. The decision caused Brent Crude prices to fall to $23 a barrel.