West Texas Intermediate crude oil futures (WTI) sank to historic lows on Monday, falling more than 305 per cent in a single day.
The leading benchmark of US oil started at just below $20 per barrel and fell as low as $-37 p/b. That the contract on May futures expired at the end of Monday drove WTI’s first ever plunge below $0, with producers desperate to offload their abundant supply.
WTI has returned to positive value with the start of the June futures contract, however, its immediate 22.52 per cent plunge to $15.83 per barrel underlines the sheer oversupply in the American oil market.
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Demand for the commodity globally first sank in late February following the widespread lockdowns imposed across China to restrict the spread of Covid-19. After Russia rejected OPEC+’s proposals to counter this fall in demand, Saudi Arabia flooded the market, engaging in a month-long game of brinksmanship with its erstwhile energy ally.
While the price war has ended, its effects continue to be felt most severely in the United States. President Donald Trump signalled his ambivalence, at once welcoming the largest plunge in oil prices since the First Gulf War, stating: “Good for the consumer, gasoline prices coming down!” but also expressing the need for a quick resolution.
The flooded market effectively ended the shale boom, which had helped the United States become a net exporter of oil and had somewhat reduced its dependence on Saudi Arabia. With the oil price sinking below the cost of shale production it emerged that only a handful of major energy firms could feasibly continue operations.
The arrival and rapid spread of the novel coronavirus throughout the US spelled trouble, even for these firms. With the vast majority of states in effective lockdown, demand for the commodity plunged yet further. News that oil storage facilities across the country were becoming increasingly full exacerbated Monday’s plunge.
A further indication of the scale of the impact on the US oil industry beyond the day’s record plunge could be found in Houston-based oilfield services giant Halliburton reporting a first quarter loss of $1bn (£800m, €920m) and a write down of $1.1bn worth of assets.
With no clear timeframe for a reopening of the US economy and the worst recession since 1929 feared by many to have already started, it is by no means clear when WTI will recover.
Brent crude oil futures suffered a comparatively minor fall on Monday. However, with WTIs shocking plunge reverberating around the world, the leading international benchmark has slumped 22.60 per cent in mid-morning Tuesday trading to stand at $19.79 per barrel.