The price of West Texas light crude oil went through the floor on Monday. Quite literally. If you wanted to get your hands on a barrel for delivery next month it would cost you, well it wouldn’t have cost you anything. The price turned negative for the first time in history.
At one stage, oil was trading at -$40. Put another way: they couldn’t give it away.
This is an absolutely remarkable, unprecedented event. The scale and the pace of the collapse in economic activity around the world following the outbreak of the coronavirus has left the world with huge stocks of oil and a lack of places to store it.
West Texas is only one measure of the “oil price” there are others - like Brent - which haven’t collapsed in the same way.
And in the months beyond May the price of West Texas contracts, while low, hasn’t slumped in quite the same way, suggesting that the market view is the glut is temporary - that supply and demand may realign as countries begin to try unlock their economies and oil producers pump less.
But the price of oil generally has been on the slide since the beginning of the year and remains extremely low, which is a pretty disastrous for countries like Iraq, Russia, Nigeria that depend on oil and pretty embarrassing for President Trump for whom the revival of the US’s oil and gas industry is a badge of honour.
It’s clearly not good news for what remains of UK’s oil industry in the North Sea, but the UK is a net importer of oil and the government and Bank of England will therefore both see low oil prices as rather benign - when oil is cheap, everything else tends to get cheaper. No mean thing as we head into recession.
This is astonishing event, one that tells you a lot about the havoc and dysfunction in the oil markets but one that, unfortunately, isn’t terribly informative about what’s happening to the economy.