By Mike Lee, Carlos Anchondo and Heather Richards
Oil prices took a spectacular tumble yesterday with the benchmark U.S. grade falling into negative territory for the first time on fears the world will run out of storage during the novel coronavirus pandemic.
West Texas Intermediate crude, which sold for more than $60 a barrel at the beginning of the year, started the day at just under $18 a barrel and fell 300% to a low of around negative $37 per barrel. The plunge came amid an unprecedented drop in worldwide oil consumption due to widespread travel restrictions and business shutdowns aimed at curbing the spread of COVID-19.
The negative price — which roiled markets a week after the Trump administration and the world’s crude-producing countries negotiated a highly publicized deal to stabilize them — was likely a quirk of the oil market structure and will be short-lived, analysts said. But it shows that the pandemic’s economic effects will continue to hammer oil prices for months, if not longer.
The wild card is how long the world’s economy stays subdued because of the virus, said Ryan Kellogg, a professor at the University of Chicago’s Harris School of Public Policy. The longer the pandemic lasts, the more likely it is that oil producers will see their skilled workforce move to other jobs and their stored equipment start to deteriorate, making it harder to restart production.
“The big question for the industry is going to be, ‘How long does it last?'” he said.