The price for a barrel of oil plunged negative Monday for the first time ever as the coronavirus pandemic has kept most of the world at home, forcing oil producers to pay buyers to take crude off their hands.
People are not commuting or traveling, leading to a devastating decline in global oil demand, and the price of oil has crashed at a rapid rate. One barrel of West Texas Intermediate crude cost in the $60 range to start the year. It has dropped more than 160% since.
Down from around $18 a barrel Friday, the price of West Texas Intermediate crude to be delivered in May ended Monday at negative $37.63 a barrel.
“That’s oil for future delivery in May, called a front-end contract,” Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University, told The Texas Tribune. “Basically, for producers, this means: I’ve got some oil, I’ll sell it to you and, in fact, I’ll even pay you to take my oil.”
Prices also tumbled for barrels to be delivered beyond May. Oil scheduled to be delivered in June fell 12% Monday to about $22 a barrel. Monday’s drop in prices was a sign that investors — hurrying to meet the Tuesday futures contract deadline for May crude deliveries — are worried there will be no place to put the oil.
As of April 10, oil storage in the U.S. was 57% full, according to the U.S. Energy Information Administration.
The drop in prices is expected to compound the economic and budget blows from the world staying at home. The state was already headed for a recession before Monday, and Texas is the nation’s top oil-producing state, so its economy and budget are highly sensitive to oil prices. When production slows here, employment and tax revenues decline, and budget cuts at the state and local levels often follow.
Oil prices plummeted in early March to what was, at the time, their lowest point in decades after Saudi Arabia declared a price war on Russia. Matters have only worsened because almost no one wants to buy oil and gas these days — people have not been flying, commuting or traveling due to the coronavirus pandemic.
Texas oil producers have already felt the effects, and in addition to closing oil wells, losing money and laying off employees, many producers expect rough times ahead.
“People are preparing for significant pain the rest of the year,” Ed Longanecker, president of Texas Independent Producers and Royalty Owners Association, told The Texas Tribune.
Earlier this month, a large group of oil-producing countries, including Saudi Arabia, Russia and the United States, eventually agreed to cut 9.7 million barrels of oil per day from the global oil market. Analysts have said more cuts will be needed to keep pace with the drop in demand.
“The big Oil Deal with OPEC Plus is done,” President Donald Trump tweeted April 12. “I would like to thank and congratulate President Putin of Russia and King…