U.S. crude prices plunged to their lowest level in history as traders continue to fret over a slump in demand due to the coronavirus pandemic.
West Texas Intermediate crude for May delivery sank to just one cent per barrel, its lowest level on record.
The front part of the oil futures ‘curve,’ which is the May contract that expires on Tuesday, was hit the hardest since it applies to fuel that’s set to be delivered while most of the country remains on lockdown thanks to the coronavirus. There’s little demand for gasoline from refineries, and storage tanks in the U.S. are nearing their limits.
The spread between the May and June contracts — known as the front month and second month — is now the widest in history, according to KKM Financial’s Jeff Kilburg.
Earlier this month, analysts at Goldman Sachs warned that the coronavirus shock was “extremely negative for oil prices and is sending landlocked crude prices into negative territory.”
“The U.S. situation is quite dire,” Daniel Hynes, senior commodity strategist at ANZ, told CNBC’s “Squawk Box” on Monday.
“Clearly, being a relatively landlocked market there, we are seeing real pressure on storage as a consequence of the collapse in demand,” Hynes continued. “Without any sort of hope I suppose, at least over the next month about that easing up. I think prices are going to remain under pressure.”
The coronavirus pandemic has dealt a severe blow to economic activity around the globe and sapped demand for oil. While OPEC and its oil-producing allies finalized a historic agreement earlier this month to cut production by 9.7 million barrels per day beginning May 1, many argue that it still won’t be enough to counter the fall-off in demand.
The International Energy Agency, for instance, warned in its closely watched monthly report, that demand in April could be 29 million barrels per day lower than a year ago, hitting a level last seen in 1995.
The COVID-19 outbreak has meant countries have effectively had to shut down, with many governments imposing restrictive measures on the daily lives of billions of people. It has created an unprecedented demand shock in energy markets, with storage space — both onshore and offshore — quickly filling up.
With demand at near-paralysis, oil and fuel tanks around the world are close to brimming.
“Going forward, we are going to have to see a lot of declines in production in the U.S. in order to push this thing a little bit higher,” Samir Madani, founder of TankerTrackers.com, told CNBC on Monday.
“U.S. energy is very important for global energy security … because if it wasn’t for U.S. energy then prices would be a whole lot higher,” Madani said.