The oil industry is in unchartered territory as oil prices fall to negative figures for the first time ever, as part of the industry’s attempt to solve the excess oil problem.
Monday was quite a memorable day for the oil industry as crude oil prices plummeted from around $18 per barrel to a shocking -$38 in just a few hours. This was not just a huge drop that sent shock across the industry but also a historic one because it was the first time that crude prices dropped below $1 and into negative territory.
Crude oil prices have since then recovered and have been trading at last week’s lows. Tuesday’s performance indicated that oil prices had recovered to the mid $20s for WTI crude. However, the price continues to demonstrate significant bearish strength.
Crude oil prices experienced a noteworthy resistance earlier this week at around the $25.90 price level with the bullish attempts seemingly muted by the bearish momentum. The price also had some support around the $18 price level.
The sudden decline in crude oil prices below $1 per barrel was a move by oil producers that was aimed at easing their backlog. The lack of demand from the market has resulted in a situation where oil producers have too much supply in stock and no space to store the oil. The negative prices means that buyers were paid by the oil producers so that they could take the excess oil barrels that producers were not able to store due to lack of storage space.
The shocking oil prices are the result of the impact of the coronavirus on the oil industry. Key oil consumers such as industrial plants, the automotive industry, and the airline industry have remained grounded due to the lockdown measures that have been implemented to try and control the situation. This lack of demand has forced producers to lower their prices and unfortunately, government intervention and OPEC measures have done little to solve the issue.