The price of worldwide oil benchmark Brent crude dropped below $20 for the first time in 18 years this morning after extreme volatility battered global oil markets.
A mid-morning plunge sent Brent down to nearly $18, before the commodity recovered to stand 24 per cent down on the day at exactly $20.
Read more: Analysis: Why did oil prices turn negative?
The fall weighed on London’s premier bourse the FTSE 100, with both BP and Shell shares down over four per cent.
The drop came after US measure West Texas Intermediate flipped into the negative last night for the first time in history, with traders paying to offload their front month delivery contracts over fears of a lack of storage.
Prices remain negative this morning, having seesawed into the black at first, but attention has now turned to the June futures contract amid fears of another record sell-off.
As of the early, this contract seemed to be headed the same way as the expiring May deal, having fallen about 30 per cent.
Neil Wilson, chief markets analyst at markets.com, said: “Whilst the May contract went absurdly low because traders had to avoid taking physical delivery at all costs, the forward contracts look too high when you consider how much demand destruction is out there.
“If this super contango market persists we may see further implosions like we saw yesterday as we approach settlement as traders are caught the wrong side of the expiry with nowhere to put it”.
Crucially, the main US storage hub in Cushing, Oklahoma, the delivery point for the West Texas Intermediate (WTI) contract, is expected to be full within weeks.
According to the International Energy Agency (IEA), the facility already over two-thirds full, with 55m of its 76m barrel capacity already taken.
With remaining capacity largely pre-leased, the simple fact is that traders and producers simply do not have anywhere to put their oil.
The prospect of having to stop pumping could pose an existential threat for some of the US’ 9,000 domestic producers, but President Donald Trump has said that he is working on a deal to protect firms.
He tweeted: “We will never let the great US Oil & Gas Industry down. I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!”
The US position as the world’s biggest energy producer has been a source of pride for Trump throughout his administration.
The price rout in the US has led to fears that Brent crude will follow suit when its front month contract rolls over on Friday.
According to Wilson, Brent, as a seaborne crude, should have some protection from a collapse of the same scale as in the US, due to tanker storage space.
Chris Beauchamp of IG said that the extreme volatility in the world’s two benchmarks showed “the complete breakdown in normality of the world’s most economically important commodities”:
“We are witnessing markets finally play catch-up to the reality on the ground in the oil market – huge oversupply and non-existent demand have combined with nearly-full storage facilities to drive complete dislocation in the crude oil market”.
The collapse has also raised questions as to whether drivers will see a reduction in prices at petrol stations.
RAC fuel spokesman Simon Williams said that although “in theory” prices could sink below £1 a litre for the first time in over a decade as retailers pass on savings, in reality it was unlikely:
“At the same time people are driving very few miles so [retailers] are selling vastly lower quantities of petrol and diesel at the moment. This means many will be at pains to trim their prices any further”.