Why US oil prices fell below zero and what it means – By Josh Siegel (Washington Examiner) / April 20 2020
Benchmark U.S. crude oil traded at a negative price for the first time ever Monday, a historic moment explained by a technical oddity and uncertainty about the recovery of oil demand amid the coronavirus pandemic.
The West Texas Intermediate crude oil price, the main U.S. benchmark, tumbled to the lowest level since trading started nearly four decades ago, settling at minus $37.63 a barrel.
But the fall was for front-month May contracts, which expire Tuesday, meaning they won’t be actively traded and thus are not the best reflection of the market.
It dropped so much because with WTI, traders “must take physical delivery of a paper contract held at the end of the month,” said Joe McMonigle, a former chief of staff in the Energy Department of the George W. Bush administration.
With no buyers as economies are shut down and concerns about U.S. storage capacity maxing out (meaning there is nowhere to put the unwanted oil), the price fell into negative territory.
Negative pricing is when the cost of selling oil is below the cost of producing and transporting it, setting up the prospect of producers essentially paying traders to take the oil.
Continue to article: https://www.washingtonexaminer.com/policy/energy/why-us-oil-prices-fell-below-zero-and-what-it-means
