For the first time in history, US oil Prices have dropped below $0 per barrel after the demand for the product dried up due to the COVID-19 outbreak that has seen most of the world go into lockdown, OYOGist.com reports.
The shock in positive supply of the commodity meant US Oil producers are now offering to pay buyers to “take the products off their hands.”
With fears growing that there may no longer be available storage facilities to hold the excess supply of crude that oil producers have, this have driven oil firms to rent out tankers to store suplus supply of US oil driving the price to zero.
The sharp decline in the valuation of the US oil price is more than mere law of supply and demand, but rather predicated on a technical pricing scope that bases the price of the product on it’s future value. This means, the price of US Oil is sold based on what it’s worth in the future, which in this case is May.
Given that the current set price for the US oil is expected to expire on Tuesday, and signs have shown that oil producers would be forced to pay for storage of the excess product, which means the product would be a liability to whoever owns it, the price then dropped to $0, a cheaper price than say a negative -$10 per barrel.
While the entire oil industry is currently experiencing a shock at the moment, with Brent Crude trading at 7% low of $25.6 a barrel and the WTI trading at $20 a barrel on Monday 20th of April.
The COVID-19 crises have dealt a serious blow to the Oil and Gas sector, coupled with an oil-war between Russia and Saudi Arabia seeing the product flooding the market at an unprecedented rate.
However, the US Oil price drop was also as a result of the recognition by the industry that even if or when the OPEC-leader Saudi Arabia and non-OPEC leader, Russia reach a deal, it would not be sufficient to offset the oil markets.