US oil price turns negative for the first time in history

The price of US oil turned negative for the first ever time this week.

On Monday, April 20, the price of a barrel of West Texas Intermediate (WTI), which is the benchmark for US oil, fell as low as minus $37.63 a barrel (approx. £30 GBP).

The lack of demand for oil is a result of the worldwide lockdowns imposed because of the Coronavirus pandemic and subsequent decline in economic activity.  

The unprecedented incident, caused in part by the way in which oil is traded on future prices, meant that producers turned to paying buyers to take stock away through fears of a shortage of storage capacity.

According to one analyst, the negative pricing is best understood as “a quirk or peculiarity of futures trading.” James Trafford of Fidelity International told the BBC that he does not see negative oil prices "as a new normal, going forward."

However, he did acknowledge that prices would remain “broadly weak” in the near term, even with the move by Opec, the group of oil-producing economies, agreeing a supply cut earlier this month in an attempt to balance the market.