Oil prices collapsed to their lowest level in more than seven decades yesterday, but consumers shouldn't expect to see the benefits in cheaper fuel at the pumps.
The price of oil futures contracts fell below zero for the first time ever as desperate traders rushed to avoid taking physical delivery of crude oil that has no immediate market.
In an unprecedented day of trading, the price for the May contracts wiped out all value, breaking every low for oil prices since 1946.
West Texas Intermediate crude oil nosedived on Monday as traders on commodity markets dashed to exit contracts, sending the price per barrel through the $12, $10, $5 marks and ultimately below $1 in rapid order.
The background to yesterday's price collapse is the lack of demand as a result of Covid-19 and a fear that America's oil storage capacity will fill up within weeks, forcing an expensive production stop.
Analyst Paul Sommerville said the immediate trigger for the price fall is a technical feature of the oil market.
Oil is traded through futures contracts with different expiry dates. The May contract is due to expire today, meaning the crude oil gets delivered to the holder of the contract. With little current demand for fuel and storage costs rising nobody wants to take delivery of oil - sparking the sell-off.
Oil prices were under pressure regardless, but contracts for delivery in June and beyond did not fall as hard.
Even so, the wider decline in oil prices - even as producers from Saudi Arabia to Russia try to hold up demand by limiting production - reflects lack of demand.
Lockdowns across the globe means oil-hungry industries from transport to energy and petrochemicals are in stasis, seeing demand for their own products collapse or are suffering other market disruptions.
West Texas Intermediate is the key US benchmark crude oil product, so a proxy for global prices.
Irish consumers have seen some cuts in fuel prices at forecourts this year - prices are down around 12pc but that's relatively little compared to wholesale price declines. That reflects to a significant extent the tax share of the pump price - tax is levied per litre on fuel rather than as a percentage of the price.
Analysts from Goldman Sachs warned earlier this month that the coronavirus crisis was "extremely negative for oil prices and is sending landlocked crude prices into negative territory".
That will hurt the oil industries in North America and Russia most, due to the geology and location of supplies there, the Wall Street bank said. America's fracking industry is widely forecast to suffer scores of bankruptcies this year as producers lose money when the oil price is low.
Jeff Currie, Goldman's global head of commodities research, said the pandemic will "permanently alter the energy industry and its geopolitics, restrict demand as economic activity normalises and shift the debate around climate change".
Prices over the summer will reflect the fact that traders see storage capacity reaching its limits and are concerned about a longer-term reduction in oil demand, he said.
Additional reporting Bloomberg