US oil futures plummeted below zero today due to the coronavirus pandemic. Loss of demand has pushed domestic storage tanks toward capacity.

West Texas Intermediate, which is the US benchmark, was trading for negative $40 a barrel, down 300% on the day, with oil producers paying buyers to take the crude they can’t store. Oil firms have had to rent tankers to store the surplus supply.

This follows the price war between Saudi Arabia and Russia, which was eventually resolved by OPEC Plus agreeing to slash oil future, but it’s not enough to stave off the biggest drop in history.

Electrek’s Take

Last week, Electrek asked the question: Oil producers make the largest production cut in history — will it matter? Looks like the answer is no. Saudi Arabia and Russia agreed to cut oil production by 5 million barrels per day each, for a total of 10 million barrels. So did many other countries, and it still didn’t keep the US from breaking historic crash records.

On April 2, our colleague Bradley Berman wrote:

With 3 billion people sheltering from the global pandemic, oil demand has plummeted. Crude storage locations are filling up. US drillers are shutting down production. And some producers are paying customers to take their oil. In a glimpse into a future when nearly all vehicles run on electricity, some crude prices are experiencing rollercoaster-like dips, rapid ascents, and plunges to nearly zero.

There is such an oversupply of oil that there is no room to put it all. So why don’t they just cut back production? Because it’s hard to shut and restart an oil well, and Americans, in the short term, don’t need it.

Designating a well as “idle” is a temporary solution for operators, but comes at a great economic and environmental cost. You can read more about why that’s so on Fractracker Alliance.

If you plug a well, it’s finished, so oil-well owners lose the money they were counting on from the expected value of oil beneath the land. So they just keep it flowing and cross their fingers that prices stabilize and they won’t be left with trillions of dollars of stranded assets. Will it bounce back once we start to come out of lockdown? Again — time will tell.

Just as we wrote this morning, in the long run, renewables would provide long-term gains.

For a good explainer of today’s events, hit the Twitter threads below:

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