For the First Time in History, US Oil has No Value
The combination of the coronavirus pandemic and the ongoing price war between Russia and Saudi Arabia has severely impacted the oil futures market in the United States. By the end of trading on Monday, the West Texas Intermediate (WTI) oil futures plunged to -$37.63, marginally rebounding to -$16.74 by Tuesday morning. Current oil contracts, specifically those expiring next month, hold no value, and due to storage constraints, oil producers are forced to pay buyers to take the excess oil off their hands.
The ongoing situation has led to the unprecedented occurrence of negative oil prices, highlighting the critical challenges faced by the US oil industry.
Financial experts are grappling with the complexity of the situation. Gregory Perdon, the Chief Investment Officer at Arbuthnot Latham, emphasized the potential consequences of the sharp decline in oil prices, including implications for inflation, defaults, economic growth, and political stability due to reduced petrodollar circulation. In a similar vein, former BP chief John Browne drew parallels to the oil crisis in the mid-1980s, warning of prolonged low prices resulting from oversupply and weak demand.
The current volatility is exacerbating the challenges for WTI as it navigates the sale of future contracts for June. Prices for June contracts plummeted approximately 42% to $11.89 per barrel, while Brent crude faced a 29% drop, reaching $18.10.
