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For the first few hours of trading on Monday, the May oil futures steadily edged lower, widening the gap between that contract and the June contract, which, while weak, still ended the day at more than $ 20 a barrel. But with expiration on the way on Tuesday, the selling accelerated in the last two hours, with oil finally hitting negative territory roughly 20 minutes before the close of trading.
Once that level was breached, sellers piled in, sending the contract at one point below negative $ 40 a barrel before a slight rebound ended what will go down as the worst day since the West Texas Intermediate contract was introduced in 1983.
"I’m 55 years old, and I worked on the trading floor in college. I’ve been through the first Gulf War, second Gulf War, World Trade Center, dot-com crisis, and nothing came close to this,” said Bob Yawger, director of energy futures at Mizuho in New York. "It could get worse. This situation that we’re in is that bad."
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Analysts say this type of market dislocations could recur in coming months because fuel supply will outweigh fuel demand for the foreseeable future. Worldwide oil consumption is roughly 100 million barrels a day, but consumption fell by 30% globally, or about 30 million bpd, beginning in early March.
However, it took the Organization of the Petroleum Exporting Countries, Russia and other countries until early April to agree to cut supply by 9.7 million bpd. Other nations, like the United States and Canada, did not mandate cuts from private industry, but those companies are swiftly reducing output.
"Activity is in free-fall in North America and is slowing down internationally," said Halliburton Co CEO Jeff Miller, on a company earnings call Monday.
