May oil futures plummeted below $0 per barrel on Monday, going negative for the first time in U.S. history. Suppliers are simply running out of storage space, as the coronavirus sends the economy to a grinding halt. At this point, producers would pay buyers to take their oil.
Brent crude traded 9% lower at $25 per barrel. West Texas Intermediate (WTI) plunged by more than 250% to -$40.32 per barrel, before settling at -$37.63. WTI saw its June contract fall by 16% to $21.04 per barrel. The May contract expires on Tuesday, April 21, after which point prices are expected to hopefully rise.
The expiration of the May contract comes at a time when demand for oil has tumbled, thanks to the coronavirus pandemic. Crude is heading to refineries that cannot use it, and global oil storage is already to 70% capacity. Analysts are warning that storage could max out within a matter of weeks.
On Friday, Baker Hughes data showed the number of active U.S. rigs dropped by 66, bringing the total down to 438 and marking five straight weeks of decline. The lowest number of active rigs on record is 404, in May 2016, according to Baker Hughes data.
It gets worse. The S&P 500 energy sector fell by 43% through mid-April of this year, taking the dubious honor of being the worst performing of all S&P sectors. The full S&P index fell by 11% during that time period. Although impossible to say at this point, some oil companies are expected to fold during this time.
This price plunge comes on the heels of an historic agreement earlier this month among OPEC and its allies to cut production by 9.7 million barrels per day in an attempt to prop up prices. Prices spiked above $28 per barrel on the news. The agreement was set to take effect on May 1 of this year until the end of June. After that, tapered reductions were promised to continue through April 2022. Now, analysts expect that it will not be enough to counter the slump in demand.