Monday’s negative price environment, with that understanding, was the result of an unprecedented environment where demand was extremely low, supply was very high and optimism the market would correct itself by the end of May was minimal.
Ultimately, this meant that contract prices on Monday — the last day speculators could trade May delivery crude — were priced at a level where it would be less expensive for producers to pay someone to take the oil off their hands than it would be to build more storage or shut down their wells, which could potentially spoil their chances to make future profits.
“There’s so much going on down that borehole that you have to have a real careful understanding of what’s going to happen if you change anything down there,” said Pete Obermueller, the executive director of the Petroleum Association of Wyoming. “You could ruin a reservoir if you don’t know what you’re doing. It takes some time to do that.”
“You can’t just say ‘Oh, prices are bad, let’s flip a switch,’” he added.
While producers across Wyoming have cut production, with the number of drilling rigs across the state down from 35 in September to just six today, production cannot simply cease overnight, meaning the only option left for U.S. producers is increasing storage capacity — something President Donald Trump announced Tuesday could be happening in the coming weeks. However, sustained conditions like these, as well as the uncertainty around when economies around the world will begin to recover from the COVID-19 pandemic, will likely lead to continued underperformance for the state’s producers.