For the first time in history, the price of oil plummeted below $0 a barrel.
The contract for West Texas Intermediate, considered the benchmark for U.S. crude oil prices, traded yesterday at -$37.60 per barrel — meaning producers are willing to pay buyers to take crude oil out of their hands.
As the coronavirus pandemic leads to slumping demand for oil, storage space is running scarce, leading to an unprecedented global energy surplus. (Last week, the U.S. Energy Information Administration reported that storage at America’s oil hub of Cushing, Okla., was at about 72% capacity.) Investors have raised concerns about the oil crash’s broader economic damage as well as the potential impact on consumer spending.
Although gasoline, diesel and jet fuel prices are expected to continue their plunge into May, experts are not currently anticipating that consumers will see these declining prices show up at the gas pump. The price of crude oil accounts for only a fraction of the cost of the gas or diesel that goes into automobiles, and it takes some time for changes in oil prices to make their way through to the pumps.
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Nevertheless, May contract for West Texas Intermediate futures also settled in negative territory yesterday, while June’s contract is trading down 50% or under $10 a barrel. Further drops in the benchmark could ultimately lead to lower prices, and consumers could benefit from cheaper gasoline and travel costs, which could help boost discretionary spending.
Amid the continued spread of COVID-19 across the country, a recovery for oil demand remains uncertain — and when lockdowns eventually lift, it remains unclear how long it will take refineries to get back on track. Stay-at-home orders and retail shutdowns have inevitably shifted the U.S. economy — decimating the workforce through furloughs and endangering already-struggling businesses — and led some Americans to hold onto cash on fears of a potential recession.
Analysts are forecasting that storage tanks will be full in a matter of weeks. Some oil companies, including Houston-based ConocoPhillips, have already announced that they would curtail production. Currently, federal stay-at-home orders have paused travel activity, and market watchers are not expecting demand for oil to return until those measures are relaxed.
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