Oil's Epic Plunge

Crude prices dipped into negative territory, and the world is still awash in more oil than it can use

- Peter Coy, Javier Blas, and Will Kennedy

When oil prices crashed to below zero for the first time on April 20, the immediate financial impact was limited. The number of futures contracts priced at less than zero was just half a percent of all oil traded on Nymex, formerly the New York Mercantile Exchange. The only delivery month that went negative was May, a contract that was on the verge of expiring anyway. Investors were still pouring real money into exchange-traded funds that benefit from rising oil prices.

Still, the striking fact that some unlucky people had to pay to get rid of crude oil in the world’s most liquid market raised fears that there was more trouble to come. “Today was a devastating day for the global oil industry,” said Doug King, a hedge fund investor who co-founded the Merchant Commodity Fund. Daniel Yergin, a Pulitzer Prize-winning oil historian and vice chairman of research and information company IHS Markit Ltd., said, “The May crude oil contract is going out not with a whimper, but a primal scream.”

The Covid-19 pandemic has killed demand for oil far faster than the world’s oil producers have been able to rein in production. Storage is ordinarily the buffer that stabilizes the oil market. But the overproduction has gone on for so long that there’s almost no place left to store crude. “It’s kind of desperation time,” says energy economist Philip Verleger of PKVerleger LLC.