The price of Mexico’s export crude fell into negative territory for the first time ever on Monday as demand for oil remains low due to the coronavirus pandemic.

The state oil company Pemex reported that a barrel of crude fell to US -$2.37 per barrel, a decline of 116% compared to Friday’s closing price of $14.35.

The descent into negative territory came as the West Texas Intermediate Price, the main United States benchmark to which the Mexican crude price is tied, fell to more than $30 below zero.

The prices went negative partially as a result of the way oil is traded. Futures contracts in the United States requiring purchasers to take possession of oil in May expire today but most refineries don’t currently want crude because demand is so low and they don’t have anywhere to store it.

With nowhere to store oil themselves, some speculators paid buyers to take it off their hands.

“If you are a producer, your market has disappeared, and if you don’t have access to storage you are out of luck,” said Aaron Brady, vice president for energy oil market services at the consulting firm IHS Markit. “The system is seizing up.”

Monday’s price plunge is the latest bad news for Pemex, which saw its credit rating downgraded by both Fitch Ratings and Moody’s Investors Service last week.

With global oil prices having already fallen this year due to collapsing demand due to the coronavirus crisis and a price war between Saudi Arabia and Russia, Mexico’s revenue from oil exports has already dropped sharply and now looks set to decline even further.

Carlos Huerta, an energy sector consultant and former political economy advisor at Pemex, said that the oil market had reacted to “what will very probably be one of the most severe economic crises of the last 100 years.”

“The high correlation between the energy sector and economic growth … indicates that the economic paralysis will be brutal,” he said.

In that context, the Mexican government needs to increase spending to support the economy, Huerta said, asserting that it should inject resources into productive sectors, broaden social programs, support small and medium-sized businesses and make unemployment benefits widely available.

“If the health maxim is ‘stay at home,’ the economic maxim of the Mexican state must be ‘spend,’” he said.

President López Obrador presented an economic plan in early April to mitigate the economic impact of the pandemic but business groups described it as “disappointing” and “incomplete,” charging that it will do little to support the economy amid the inevitable  coronavirus-induced downturn.

Source: Milenio (sp), El Financiero (sp)