J. P. Morgan | The unprecedented fall in the demand for oil, combined with saturated storage capacity in the United States, caused the price of the barrel of oil with immediate delivery, taking as a reference Western Texas Intermediate crude, to enter negative territory for the first time.
Almost 58% of global oil demand comes from transportation, which has been severely impacted by the implementation of widespread travel restrictions. These restrictions have resulted in a 30 pct drop in global air traffic and an around 40% decline in road traffic.
Despite coordinated global cuts in oil production, limited storage capacity meant that owners of May futures contracts were willing to pay those with storage space around $40 in exchange for physical delivery of the barrels.
Although it appears that unfavourable winds on both the demand and storage side will continue in the coming months, companies that survive the “high oil saturation” could benefit once demand recovers and supply has been reduced.