- Putin ordered domestic oil companies to cut 20% of their production
- May contracts of WTI oil dropped dramatically below 0 before expiration
- With low demand and full storage tanks, the market is experiencing a phenomenon called contango
The WTI oil prices broke all the lows to reach negative 37 at the time of writing, the lowest since 1983.
West Texas oil started to drop dramatically beginning of 2020 with the rise in tension between Iran and the United States. Before the tension broke out, it traded at 65 USD a barrel.
At the beginning of March, its price broke the first low, the 32.90 mark.
Most analysts were confident that the oil could fall no further, after dropping approximately 50% in just one month. Then, another fall unexpectedly came with the 9.30 USD level breaking, in a sharp move downward.
On April 20th, 2020, for the first time in history, West Texas oil future contracts closed below zero with a -37 USD per barrel.
Traders and non-traders, around the world, were glued to their screens as they watched the price fall and waited to see how low it would go.
Obviously, with the start of the pandemic and the enforced lockdowns on industries, the demand for oil decreased at a sharp rate.
Immobility, production cuts, and many other factors led to this decrease in demand. Along with low demand for oil, the market then became flooded with an excess of barrels that nobody needed. Hence, the current price of -37 USD per barrel. That means producers are effectively paying 37 dollars to get rid of its excess stock.
The US Crude Oil futures contracts for May were due to expire today, and today the market will open with June contract for 22 USD a barrel.
On Monday, President Putin ordered the local producers to cut their output by 20% in a move to stop the blood bath of oil prices.
As well, OPEC came out with an agreement to cut their combined oil production by nearly 10 million bpd (barrels per day) in May, and June to fight the oversupply in the market.
What’s Next? We could see many oil companies file for bankruptcy before the end of this year. Oil-producing countries will be hit by this drop, Saudi Arabia, Russia, and other nations will suffer.
This historic drop could be an indicator of how serious the recession is to come.