Benchmark US oil prices headed to negative territory after crashing to one cent a barrel as the collapse in demand caused by the coronavirus pandemic leaves the world awash with oil and not enough storage capacity — meaning producers may soon be paying for buyers to take it off their hands.

West Texas Intermediate, the US marker, lost 99 per cent on Monday, with the price of oil for delivery next month sinking to record lows on warnings that traders were struggling to access storage capacity at the refinery hub of Cushing, Oklahoma, which is expected to be full within weeks. CME Group, the operator of the exchange where WTI trades, took the extraordinary measure of saying prices could even turn negative for the current contract, which expires tomorrow. 

That means producers would be paying buyers to take their oil in order to delay the shutdown of their fields. The price crash is the latest indication of the depth of the crisis hitting the oil sector. Lockdowns imposed in many of the world’s major economies have sent crude demand tumbling by as much as a third, leaving the industry facing what Jefferies analyst Jason Gammel called “the bleakest oil macro outlook” he had ever seen.

Physical grades in many North American regions have fallen into the low single digits reflecting a dearth of buyers able to take delivery of oil, even as prices for later contracts have held up marginally better due to some investors betting on an eventual rebound. In Canada, spot prices for Alberta’s heavy oil, which sells at a deep discount to WTI, traded at below minus $6 a barrel in the spot market, according to traders and brokers. 

The possibility of negative prices for the main US oil grades is growing. Stephen Schork, editor of oil-market newsletter The Schork Report, said he expected access to storage capacity in the US to be exhausted within two weeks — and cautioned that the collapse of the country’s oil consumption was accelerating.

“It just gets uglier from here,” Mr Schork said, adding that sharply rising unemployment numbers meant fewer and fewer Americans would be driving, hurting petrol demand even during its peak summer months.

“This summer is dead on arrival. The biggest demand months are not going to happen,” he said.  Part of the rapid decline in WTI prices reflects technicalities around the contract for oil to be delivered in May, which expires on Tuesday while short-term storage issues are severe.

Still, WTI for June delivery was also down 10 per cent at $22.62, while Brent crude, the international marker, dropped 5 per cent to $26.72. Both benchmarks traded above $65 a barrel as recently as January. Dealers speculated that traders who had successfully leased storage were putting pressure on rivals without access to tank farms.

That could allow them to snap up ultra-cheap oil for their storage tanks, before locking in much higher prices in the futures market, essentially buying oil for less than $2 and then selling a month later for more than $20.