Why did US crude prices see the biggest historic Slump?

For the first time in history, crude oil at WTI trades below $0 per barrel.

crude oil price drop
Source: Economictimes.indiatimes.com

It’s the first time in human history that US oil prices have turned negative hitting -$40.3 per barrel now. This means that oil producers are paying money to buyers to take the delivery of crude oil. There is fear that storage can run out in May.

Demand over the globe dried up due to corona virus pandemic and the global lock down.

Therefore the demand-supply mismatch is created. So the oil firm has resorted to renting tankers to store the excess supply and forced oil price to turn negative.

The price per barrel of WTI ( West Texas Intermediate) fell at historic low -$40.3 for May contract. It is the first time in history that it has gone below $0. WTI is the benchmark index for US oil.

Source: Bloomberg | Straits Times Graphics

Now all the analysts around the globe are seeing this historic crash as a sign of strain in the weak demand of oil around the globe and warn that the June contract prices can also face a downturn. If the lockdown continues. Currently, June prices are at $20 per barrel.

The background psychology of the oil market right now is just massively bearish,” Michael Lynch, president of Strategic Energy & Economic Research Inc said it in an interview. “People are concerned that we are going to see so much build-up of inventory that it’s going to be very difficult to fix it in the near term and there are going to be a lot of distressed cargoes on the market. People are just trying to get rid of the crude oil and there are no buyers on the street”.

US President Donald Trump gives the statement that the US government will buy oil for country national reserves. But there is concern about the storage facilities and analyst predict they can run out of storage as the price of oil are going down and there is an increase of delivery of oil about 50% since March, according to ANZ bank.

Moreover Asian countries like India, China are having a close eye on the historic drop in oil prices. They see the opportunity to increase their reserves at a record low prices as these companies spend a lot part of their GDP on the import of oil.

Source: Oliprice Charts.