The slump in oil prices was triggered by a global collapse in demand as the world rides out a coronavirus pandemic. The slump in prices also comes as the May futures contract expiring Tuesday forces physical receipt when storage capacity is low.
Suffice to say, the crude oil market is massively oversupplied and there appears to be no end in sight. The lockdown brought on by the COVID-19 pandemic has dropped global demand by about a third, even as global storage facilities are filling up fast.
“There is no limit to the downside to prices when inventories and pipelines are full,” tweeted Pierre Andurand, the head of the eponymous oil hedge fund. “Negative prices are possible,” he added, reports Bloomberg.
The Nasdaq 100 Index lost just 0.5 percent, while Exxon and Chevron took the Dow Jones Industrial Average down almost 2 percent. As of 10:45 a.m. ET, West Texas Intermediate Crude oil was down to $10.96 a barrel, a loss of 40.01 percent.
“The May contract expires tomorrow so volume on it is going to be very light. The June contract is more reflective of the changes,” said Olivier Jakob at Petromatrix, reports the Financial Times. “That being said, oil is very weak . . . The big thing right now is the destruction of demand due to the virus.”
The continuing drop in oil prices comes despite the OPEC+ deal to cut oil production by 10 percent globally. This deal should be good through April 2022 as the world tries to stabilize oil prices. In the U.S., data shows that the number of active oil rigs has dropped more than a third in the past month.
