On April 20, the price of a barrel of Western Texas Intermediate (WTI) crude oil became negative for the first time in history. With contracts for May delivery set to expire the next day, trade pressure led the global benchmark for oil prices to fall to -US$38.76.

The same day, Husky Energy further reduced its 2020 capital expenditures to between $1.6 to $1.8 billion, down 50 per cent from the $3.2 to $3.4 billion originally announced in December 2019. The company also announced it was increasing its liquidity by $500 million for a total of $5.2 billion and reducing production of its Integrated Corridor upstream operations in Saskatchewan and Alberta by more than 80,000 barrels per day.

The announcement comes more than a month after Husky Energy first announced cuts to its 2020 spending by $1 billion and lowered its capital investment guidance to $2.3 to $2.5 billion in 2020. Later the same month, Suncor Energy revised its 2020 guidance and lowered its expected capital spending by 26 per cent to a range of $3.9 billion to $4.5 billion.

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The drastic price drop of WTI is a result of dwindling demand for oil as many around the world are under some form of stay-at-home orders due to the COVID-19 pandemic. Oil prices are determined by futures contracts, which are agreements to buy and sell a certain amount of oil at a stated price at a future time. Futures represent how much a buyer would pay to have said oil delivered to them at a future date. With May contracts for WTI being finalized on April 21, it would mean anyone holding a future would agree to physically acquire the oil.

The price of Western Canadian Select (WCS) oil, Canada’s major oil benchmark, similarly decreased and reached a low of $3.96. Despite staying positive, Canadian oil companies have been significantly impacted by the falling oil prices.

Oil prices have been falling significantly since March when major global restrictions to try and curb the spread of COVID-19 were introduced, causing a drop in demand. A price war between Saudi Arabia and Russia resulted in a further saturation of oil on the market. Although the Organization of the Petroleum Exporting Countries recently reached a deal with Russia, the U.S. and G20 to cut production by approximately 10 per cent, this only momentarily stalled the price drop, as reported by the CBC.

While May contracts plummeted, June WTI contracts stayed above zero, ending the day at a value of US$20.43 a barrel. According to the Financial Post, the US$60.76 spread between the May and June values of WTI was the widest in history for the two closest monthly contracts.