LONDON, April 21 (NNN-AGENCIES) — Oil plunged below $5 a barrel as the coronavirus pandemic ravages global economies, threatening to erase an entire decade of demand growth, slashing thousands of jobs and wiping out hundreds of billions of dollars from company valuations.
Industrial and economic activity is grinding to a halt as governments around the globe extend shutdowns due to the swift spread of the coronavirus.
Oil has faced its own knock-on effects with a market massively oversupplied and nowhere to put physical barrels of crude. An unprecedented output deal by OPEC and allied members a week ago to curb supply is proving too little too late in the face a one-third collapse in global demand.
On Monday, a technical oddity exacerbated the price plunge as traders fled the May futures contract ahead of its expiration Tuesday, driving it down as much as 78% to the lowest level since futures began trading in New York in 1983.
The following month’s contract fell 11% to $22.22 a barrel. CME group said it’s possible that May WTI contract could trade negative.
Since the start of the year, oil prices have fallen by more than 90% after the compounding impacts of the coronavirus and a breakdown in the original OPEC+ agreement. With no end in sight, and producers around the world continuing to pump, that’s causing a fire-sale among traders who don’t have access to storage.
There are signs of weakness everywhere. Buyers in Texas are offering as little as $2 a barrel for some oil streams, raising the possibility that producers may soon have to pay to have crude taken off their hands.
The spread between the nearest two contracts for the U.S. benchmark has fallen to its weakest level on record. In Asia, bankers are increasingly reluctant to give commodity traders the credit to survive as lenders grow ever more fearful about the risk of a catastrophic default.
In New York, West Texas Intermediate dropped to $5.48 a barrel at 1:06 p.m. local time. Brent declined 5.8% to $26.44.
Crude stockpiles at Cushing — America’s key storage hub and delivery point of the West Texas Intermediate contract — have jumped 48% to almost 55 million barrels since the end of February. The hub had working storage capacity of 76 million as of Sept. 30, according to the Energy Information Administration.
