Oil prices in the United States crashed on Monday to a record low amid a collapse in demand caused by the coronavirus pandemic.
The U.S. oil futures went below $0 a barrel, the worst level since NYMEX opened oil futures trading in 1983.
The development came against the backdrop of an 18-year low drop in prices amid storage challenges.
Analysts said that record output cuts agreed by OPEC and its allies, OPEC+, are not enough to offset the loss in demand occasioned by the global downturn.
As factories and machines across the world grind to a halt, demand for oil as nosedived amid falling prices.
According to Bjornar Tonhaugen, head of oil markets at Rystad Energy, the May futures contract for West Texas International is about to expire, and frantic last minute trading is compounding concerns about how much oil the United States will be able to store as demand dries up.
This is leading to “large price swings”, he explained.
Negative swing
The development implies that 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 U.S. oil into negative.
Analysts attributed the severe drop on Monday to the technicality of the global oil market. Oil is traded on its future price and May futures contracts are due to expire Tuesday. Due to the uncertainty, traders were keen to offload those holdings to avoid having to take delivery of the oil and incur storage costs.