Oil Prices Now in Negative Territory

CBJ — As crazy as it sounds there are certain oil companies that are giving away their excess stockpiles. Not only are some being forced to relieve their stockpiles for no money, but they are actually having to pay a fee to dump the commodity and hand over the rights to any remaining oil shipments to be made on their current contract. Companies have run out of room to store their commodity, because there are no significant buyers due to the international pandemic.

Many contracts signed months ago would have been deals for approximately $30 per barrel. Companies would buy on speculation of increase, and thus make a profit.  But with a glut of oil on the world market, due largely to a massive drilling war between Russia and Saudi Arabia, there is now more oil than storage capacity. Usage of crude oil has declined dramatically with the global COVID-19 pandemic and so the market has all but dried up.

Brent crude was officially selling for under $27 per barrel, and WTI for less than $8. Virtually no companies are getting that amount now.

Smaller to mid-sized oil companies have out of room to store their commodity — and more oil still to be delivered — they’ve had no chance but to decline further shipments as they drown in their own oil. However, in doing so, it puts them in violation of their contract. In order to get out of it, some suppliers are having to pay larger entities a fee to take on their current storage supply as well as ongoing shipments for the duration of a contract.

In Canada it’s even worse. Because the major world economies are currently self-sufficient there is virtually no market for Canadian oil and as such it’s selling on the official market for a paltry $2 per barrel. But with the intense global battle to sell oil so cheaply, and now in negative territory in many regions, it’s gotten to the point where Canadian producers would also have to give their oil away, if not pay to do so as others are now doing.

Exacerbating the situation was the fact Russia and Saudi Arabia carried on a weeks-long drilling war whereby both countries markedly increased oil production despite there being no market for the product. The two sides finally agreed to cut supply by 9.7 million bpd after U.S. intervention and mediation, but a colossal glut of excess oil remains in reserve, with the stockpile not going down.