Updated at 4:53 p.m. ET
The dramatic collapse in worldwide demand for oil led to an extraordinary development on Monday: U.S. oil prices fell below zero for the first time ever, and kept falling.
The key U.S. oil benchmark, West Texas Intermediate, settled at negative $37.63.
Driven by a trading contract deadline, traders desperately looked for buyers for the barrels of oil they normally hold in their books. But buyers were hard to find — even when the oil was being given away for free.
So some traders, instead of paying to buy oil, were ready to pay as much as $37.63 to get someone to accept delivery of one barrel of oil.
The coronavirus pandemic has led the global economy to slam the brakes, leading to an extremely sharp drop in demand for oil. It has created a massive oil glut and raised concerns about the lack of physical storage space for it.
The specific sell-off on Monday is partly due to market mechanics, because the May futures contract for West Texas Intermediate is about to expire. During normal times, traders just sell these contracts and roll on to those of future months. But now, buyers that are capable of receiving and storing that much oil are in short supply.
The prices of other types of crude, without a deadline coming up that quickly, have not dropped nearly so sharply.
But in general, crude oil prices are very low and continue to fall. Brent, an international benchmark, is in the mid-$20s and fell more than 9% on Monday.
At the start of 2020, a barrel of West Texas Intermediate cost around $60. Prices had dropped swiftly because of the coronavirus, landing at around $18 a barrel on Friday, ahead of Monday's big dive.
Oil-producing countries and companies are trying to reduce their output, but they can't keep pace with the extremely rapid drop in global demand as the world economy hits the brakes.
That's creating a massive oversupply of oil and raising concerns about where to physically store it all.
MARY LOUISE KELLY, HOST:
Today the price of crude oil went negative, as in, oil traders and investors were paying money to unload the oil futures they had already invested in. Before you ask, yes, this is unprecedented. These, of course, are unprecedented times. NPR's Camila Domonoske has been watching the markets today. She's here with us now.
CAMILA DOMONOSKE, BYLINE: Hi.
KELLY: So what happened today?
DOMONOSKE: So West Texas Intermediate crude - that's the benchmark that's used in the United States to price oil - and it went bonkers today.
DOMONOSKE: I woke up this morning, and it was under $12. And that felt newsworthy. It was the lowest in decades, right? So I'm like, oh, here's the news. From there, the price kept going down. You hit single digits, the lowest price ever in the history of this particular crude oil. It kept going down - $1 a barrel, zero dollars a barrel. And then it kept going down to negative $37. And when I say this has never happened before, literally, the exchange where this trading happens had to change its system to allow for negative numbers.
KELLY: So my...
DOMONOSKE: It was wild.
KELLY: Yeah, totally wild. And my follow-up question is, what is going on? That's the what happened. Now let's get to the why. Is this all about demand - the fact that we're all staying home, nobody's out driving and buying gas?
DOMONOSKE: Yeah. So that's part of it. This is - why this happened is a complicated question. Definitely part of it is that the pandemic has caused nobody to drive. People aren't flying as much as they would. Demand for oil has just gone off a cliff. So that's pushed crude prices down. That's true for all kinds of crude all around the world. So you're looking at $20 for crude instead of $60 for crude. That's low prices.
Prices going negative for West Texas - there's something else going on here. And part of it is that there was this deadline. So I have to get a little bit into how oil futures work. But you're paying now to get oil delivered later, right? So right now, maybe you would pay to get oil in May.
DOMONOSKE: And normally, that's valuable 'cause, you know, people are going to want oil in May, right? So that's something that's worth something. But right now, because of the pandemic, because there's so much production in demand because people haven't been able to reduce production enough to keep pace with that drop, there's just too much oil in the world. So suddenly, having oil for arrival in May means you have to find somewhere to store that oil. So instead of being something that's valuable that someone will pay money to you in exchange for, you have to pay someone in order to take that off of your hands.
So this deadline is coming up tomorrow where anybody who was holding an oil future as an investment has to find a buyer for it by tomorrow or else they're going to get this shipment of oil. So if you're an investor who was planning to make money off of this, suddenly you're not going to make money off of it. You also don't want to get stuck with oil that you can't store. So you had to find a buyer, and they were having to offer money to get people to commit to take this oil.
KELLY: And just really quickly, Camila, can oil prices stay negative?
DOMONOSKE: We're expecting the oil prices will go back up once this deadline has passed and we're returning to more normal times, but they'll still be low.
KELLY: All right. NPR's Camila Domonoske on a stunning day for oil prices.
Thank you, Camila.
DOMONOSKE: Yeah. Thank you. Transcript provided by NPR, Copyright NPR.