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Oil prices in the United States crashed on Monday to a record low amid a collapse in demand caused by the coronavirus pandemic.

The U.S. oil futures went below $0 a barrel, the worst level since NYMEX opened oil futures trading in 1983.

The development came against the backdrop of an 18-year low drop in prices amid storage challenges.

Analysts said that record output cuts agreed by OPEC and its allies, OPEC+, are not enough to offset the loss in demand occasioned by the global downturn.

As factories and machines across the world grind to a halt, demand for oil as nosedived amid falling prices.

According to Bjornar Tonhaugen, head of oil markets at Rystad Energy, the May futures contract for West Texas International is about to expire, and frantic last minute trading is compounding concerns about how much oil the United States will be able to store as demand dries up.

This is leading to “large price swings”, he explained.

Negative swing

The development implies that oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May.

As a result, oil firms have resorted to renting tankers to store the surplus supply and that has forced the price of U.S. oil into negative.

Analysts attributed the severe drop on Monday to the technicality of the global oil market. Oil is traded on its future price and May futures contracts are due to expire Tuesday. Due to the uncertainty, traders were keen to offload those holdings to avoid having to take delivery of the oil and incur storage costs.

On Monday, the slump affected future prospect as June prices for WTI were also down, but trading at above $20 per barrel. Meanwhile, Brent Crude,the benchmark used by Europe and the rest of the world, was also weaker, down more than 7% at about $26 a barrel.

Earlier in the month, OPEC members and its allies agreed a record deal to slash global output by about 10 percent, said to be the largest cut in oil production ever to have been agreed. But analysts expressed doubts over the deal, saying it will not be enough to balance oil markets.

Unsold Cargoes, no storage

Last week, PREMIUM TIMES reported how Nigeria’s benchmark crude oil grade, Bonny Light, slumped significantly in the market.

The Nigeria crude traded at $12 and $13 per barrel between Monday and Friday.

The report came after traders gave account of how 10 million barrels of crude made available for sale in April were still unsold with another 60 million expected to hit the market in May.

The vast majority of unsold supplies are Nigerian, traders said, and the glut is made worse because of the drop in demand from traditional European buyers.

Market analysts said it is not just West African oil markets that are struggling in the Atlantic Basin. Principally due to so much European demand halted by the virus, grades in the North Sea and the Mediterranean are also affected.

There are concerns that the development may pose challenges to Nigerian fiscal policymakers, as the nation struggles to address economic uncertainties. This is because the prevailing prices are well below the nation’s fiscal breakeven, assessed by Fitch Ratings at about $133 a barrel.

As prices crash amid falling demand, capacity is filling fast on land and at sea. As that process continues, it’s likely to bear down further on prices.

On Monday, market insiders said that it will take a recovery in demand to really turn the market round and that will depend on how the Coronavirus crisis unfolds across the globe.

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