Shearman And Sterling

Energy, Oil Refinery

Apr 20, 2020

WTI Goes Below $0—A New World or a Bad Day?

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WTI GOES BELOW $0—A NEW WORLD OR A BAD DAY?

The spot price of WTI crude oil dropped below $0 for the first time in history today. While a supply glut for crude oil exists, the true value of crude going forward is not near or below $0.

Today’s negative WTI spot price reflects an absence of further demand for May deliveries beyond what buyers have already purchased for May. The contract for May deliveries closes tomorrow.

June, July and August deliveries are trading around $22, $27 and $30, in-line with broader market views on demand. Saturation for May delivery resulted from (i) decreased demand for oil and refined products due to the COVID-19 pandemic, (ii) US domestic storage facilities nearing full capacity and (iii) the OPEC+ cuts not taking effect until May 1. 

While supply/demand issues persist globally, today’s WTI price below $0 is a timing aberration in our view.

“This is a unique moment in time—a perfect storm—but the world still has demand for crude oil. Today is an anomaly,” said Omar Samji, a partner in Shearman & Sterling’s Energy industry group.

As shocking as today is—tomorrow is another day.

Authors and Contributors

Omar Samji

Partner

Mergers & Acquisitions

+1 713 354 4887

+1 713 354 4887

Houston

Hugh Tucker

Partner

Mergers & Acquisitions

+1 713 354 4899

+1 713 354 4899

Houston

Sarah McLean

Partner

Mergers & Acquisitions

+1 713 354 4897

+1 713 354 4897

Austin

Jeremy Kennedy

Partner

Mergers & Acquisitions

+1 713 354 4895

+1 713 354 4895

Houston

Todd Lowther

Partner

Tax

+1 713 354 4898

+1 713 354 4898

Houston

Industries

Regional Experience