As swelling inventories have storage facilities nearing their capacity, crude oil prices marked a historic low on Monday.
West Texas Intermediate crude oil futures for May delivery cratered by as much as 41 percent to $10.85 a barrel. Further, at the end of the day, prices went negative.
Demand for crude oil is projected to fall by 29 million barrels per day this month, according to the International Energy Administration, as COVID-19 has forced countries around the world to issue “stay-at-home” orders to slow the spread of the disease. Lower economic activity means weaker demand for crude oil and its byproducts, including gasoline and jet fuel.
After more than a month of pumping out oil at elevated production levels, the world’s largest producers agreed on April 12 to historic cuts that will reduce output by 20 million barrels per day beginning May 1.
However, the production deal still won’t be able to offset the big drop in demand.
The sharp drop in demand has storage tanks in Cushing, Oklahoma, a key U.S. oil hub, filling up at an astounding rate.
“To prevent inventories reaching capacity limits, lower prices are needed to trigger further production shut-ins in North and South America,” wrote the chief investment office of the global wealth management arm of Zurich-based investment bank UBS.