The slump in prices comes as traders brace for continued fallout from the economic downturn caused by the coronavirus, which has shut down most major economies around the world.
West Texas Intermediate, one of the world’s main oil benchmarks, hit its lowest price ever in trading on the New York Stock Exchange on Monday, with futures for May delivery hitting $0 per barrel after 2 pm EST and going negative, to as low as -$34.87 per barrel as of about 2:30 pm, according to market data.
If the situation doesn’t turn around, the benchmark will be on track to its lowest-ever close since the inception of futures trading in 1983. The previous lowest-ever close of $10.42 was recorded on March 31, 1986, according to Jim Bianco of Bianco Research.
The unprecedented drop in prices is bad news for US shale producers, already battered by the two month long global economic freeze caused by countries’ response to the COVID-19 crisis, and will impact other major exporters including Russia and Saudi Arabia, increasing the speed at which those nations eat through their rainy day reserves.
The continued collapse comes in spite of the historic agreement by OPEC+ and partner nations last week to cut oil output by some 9.7 million barrels per day (bpd) through June.
Crude prices began their roller coaster ride of wild drops six weeks ago, after the fateful OPEC+ meeting in Vienna on March 6, where Saudi and Russian energy ministers failed to reach an agreement on how much to cut prices by amid the COVID-19 pandemic. Riyadh added fuel to the fire sale by announcing deep discounts on its April contracts and promising to ramp up production by over 20 percent, from 9.7 million bpd to 12.3 million bpd. Russia and other countries followed suit in a bid not to lose market share, sparking an unprecedented glut amid flagging demand.