Surprisingly, the price of US crude oil collapsed by more than 105 per cent to -$2 per barrel in a matter of hours, creating a global supply glut as billions of people across the globe remained indoors to contain the spread of the deadly virus.
According to news agency Reuters, the May US West Texas Intermediate (WTI) contract fell $17.37, or 99 per cent, to $0.15 a barrel at 1.50 PM EDT after touching an all-time low of $2.26. Brent was down $1.76, or 6.3 per cent, to $26.32 a barrel.
The June WTI contract is trading more actively at a much higher level of $22.25 a barrel. The spread between May and June was more than $19, the widest in history for the two nearest monthly contracts, the agency report stated.
The unprecedented change in consumption forced oil producers to pay buyers to take the glut of crude oil which was tough for them to store, as rising stockpiles of crude oil loomed in oil storage facilities.
ALSO WATCH | Crude Price Reach $20 Per Barrel In International Market
On US stock market front, investors bailed out of the May contract ahead of expiry later on Monday because of lack of demand for the actual oil. When a futures contract expires, traders must decide whether to take delivery of the oil or roll their positions into another futures contract for a later month.
Several market analysts pointed out that US crude stockpiles at Cushing rose 9 per cent in the week to April 17, totaling around 61 million barrels.
"The storage is too full for speculators to buy this contract and the refiners are running at low levels because we haven't lifted stay-at-home orders in most states," Phil Flynn, an analyst at Price Futures Group in Chicago told Reuters.
Several reports also highlights that refiners are processing much less crude than normal, so hundreds of millions of barrels have gushed into storage facilities worldwide.
Traders have hired vessels just to anchor them and fill them with the excess oil. A record 160 million barrels is sitting in tankers around the world.
ALSO WATCH | Why Do Indians End Up Paying Almost Double For Petrol, Diesel?
The fall in US crude oil could also be attributed to the recent output cut agreement between the Organization of Petroleum Exporting Countries (OPEC) and its allies.
There were hopes that agreement would stabilise oil prices, but with Covid-19 pandemic continuing, there has been a large slip in demand that is not letting a pick up in oil prices.
Soon after the OPEC-Russia talks on production cut failed earlier last month, crude had fallen by more than 25 per cent, the largest fall since the 1991 Gulf War, to $34 per barrel on March 9.
The price of oil has now reached a point that it is increasingly becoming difficult for higher cost producers to remain in operation and rather look at declaring bankruptcy.
With world demand now forecast to plunge by over 20 million barrels per day, a 30 per cent drop from last year, analysts say massive production cuts will be needed beyond just what has been agreed between the OPEC, Russia and other producers.
(With inputs from agencies)