Oil-price turmoil gripped traders once more Tuesday, a day after US crude futures crashed below zero for the first time as the coronavirus crisis crippled global energy demand and worsened a supply glut.
The commodity rout also sent world equity markets spiralling lower, as investors fretted it could compound a deep global economic downturn that has been widely forecast as a result of the deadly COVID-19 outbreak.
West Texas Intermediate had Monday collapsed to an unprecedented intra-day low of minus $40.32.
Negative prices mean traders must pay to find buyers to take physical possession of the oil — a job made near-impossible with the world’s storage capacity at bursting point.
This week’s massive sell-off came ahead of Tuesday’s expiry of the May contract. Most trading has moved to the June contract.
‘Ever thought that it could be imaginable to see the price of US oil valued at less than a pizza? Or even a slice of pizza? How about for it to actually cost to sell US crude?’ said Jameel Ahmad, head of currency strategy and market research at FXTM.
‘All of this was previously thought to be unthinkable — but it became very real for traders as the price of US oil turned negative for the first time in history.’
European benchmark Brent North Sea oil for June delivery tumbled to an 18-year low, before coming off lows in volatile deals.
‘The most simple explanation for negative oil prices is that... players are now paying buyers to take oil volumes away as the physical storage limit will be reached. And they are paying top dollar,’ said Rystad Energy analyst Louise Dickson.
Oil markets have been ravaged this year after the pandemic was compounded by a price war between Saudi Arabia and Russia.
While the two big oil producing nations have drawn a line under the dispute and agreed with other countries to slash output by almost 10 million barrels a day, that is not enough to offset the lack of demand.
Equity markets were meanwhile also deep in the red on Tuesday, having enjoyed a healthy couple of weeks thanks to massive stimulus measures and signs of an easing in the rate of new infections globally.
Analysts warned the drop in stock markets could be an indication that the recent surge may have been too much too quick and another prolonged sell-off is possible.
The flight to safety was reflected in currency markets, where the haven-investment dollar rallied against high-yielding, riskier units.
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