WTI crude crashes below $5/bl; soon, producers may pay you to take their oil

The world is already familiar with the concept of negative interest rates. And given the pace at which crude oil prices are plunging, you could very soon have producers paying the consumer to take oil off their hands.

US crude oil prices are down 72 percent for the day, with US WTI (Western Texas Intermediate) falling below $5 per barrel. This is the biggest single day decline in history of crude prices, which are now down to 21-year lows.

Since the start of 2020, US crude prices are down more than 90 percent. The physical markets are seeing even lower bids, with some companies in Texas offering crude at $2 a barrel.

The big fear is that global storage is filling up at a speed that most oil producers did not see coming. The storage costs onshore and offshore have skyrocketed in the past month, with super tankers charging as much as $165,000 a day!

Things have almost come to a point that oil producers may find it cheaper to pay consumers to take delivery rather than pay high rates for storage. And it is no longer about storage charges alone; where is the space to store it?

It is an even bigger concern for Canada crude producers as it trades at a discount to US crude by $10-15 a barrel. So with US crude at $10 a barrel, the Canada crude is practically into negative. The Canada crude extraction cost is at $8.15 a barrel, transportation and blending cost comes to approximately  $9 a barrel.  Also, reports suggest that Canada’s 40 million barrel oil storage is close to capacity. With no refining and transportation or demand, the crude is sitting near worthless and trading in negative as per some quotes.

Western Canadian Select oil is now trading at negative prices.

Killing & delaying pipelines landlocked us.#Covid19 collapsed demand.The Russian-Saudi price war surged supply, filling up inventories.The future of hundreds of thousands of Canadian jobs is at stake. pic.twitter.com/n2pGHsh30E— Jason Kenney (@jkenney) April 20, 2020

The US Cushing hub is holding 55 million barrels crude at 2018 highs, up 48 percent in past month. The fallout from the coronavirus pandemic and the oil price war between Saudi Arab and Russia have heavily weighed on the global crude trade, and this trend is expected to continue in the coming months.

A deadly cocktail of sharp price declines, storages on the point of overflow, and lack of demand has set the stage for a new round of bankruptcies in the oil sector.

Brent crude prices, however, have been falling at a slower pace than WTI crude. The reason being that Brent can access tanker storage easily as it is much closer to water, while WTI is 500 miles away from water.

With global demand down 30 percent currently and output cuts still not reflecting in the global inventories, the current oversold positions can still slip before the value buying begins