Daily Bulletin


News

  • Written by Christina Nikitopoulos, Senior Lecturer, Finance Discipline Group, University of Technology Sydney

We have just witnessed an oil price crash like never before taking prices of West Texas Intermediate into deeply negative territory.

The spot price of West Texas, the US benchmark, reached minus US$40.32 a barrel and the May futures price (which is deliverable in a physical form) went to minus US$37.63 a barrel, the lowest price in the history of oil futures contracts.

There has been no better indicator of the extent of the economic impacts of coronavirus. With borders closed and much of the world’s population being urged to stay at home, transport has come to a near halt.

How can a price turn negative?

What just happened to the price of oil? Oklahoma’s Cushing oil storage facility, the largest in the world. Crude Oil Daily

The industry has not been able to slow production fast enough to counter the drop in demand. The other mechanism that normally stabilises prices, US oil storage, appears to be nearing capacity.

West Texas Intermediate is typically stored at the Cushing facility in Oklahoma which is on the way to being full.

Cushing is said to be able to hold 62 million barrels of oil – enough to fill all the tanks of half the cars in United States.

That’s why prices have gone negative. Traders with contracts to take delivery of oil in May fear they won’t be able to store it. They are willing to pay not to have to take it and have nowhere to put it.

Not all oil contracts went negative. West Texas Intermediate contracts for June and subsequent months are still positive, reflecting a feeling that the supply and demand imbalance will soon be corrected.

Brent, the international price benchmark, remained positive, dropping to US$25.57 – a fall of about 9%. Unlike West Texas Intermediate, Brent deliveries can be put on ships and transported to storage facilities anywhere in the world.

Not confined to the US

There is no guarantee the problems of storage evident in the US won’t spread to other markets.

This is despite the decision of OPEC-Plus (the mainly Middle Eastern member of the Organisation of the Petroleum Exporting Countries plus Russia and other former Soviet states) to respond to the free fall by cutting output by 9.7 million barrels per day, ending the recent duel over production levels between OPEC and Russia.

Read more: Oil crash explained: How are negative oil prices even possible?

Adding another element to the COVID-19 story, on March 9, the day of the Black Monday stock market crash, the Chicago Mercantile Exchange reported a new daily record for West Texas Intermediate trading, reaching 4.8 million contracts, surpassing the 4.3 million recorded on September 2019 following the drone attacks on Saudi oil facilities.

The future does not look good. With rising unemployment, stuttering economies, and collapsing financial markets the prospects for substantial recovery in the oil markets seems far away.

Read more: The coronavirus is just the latest blow to oil producers

The US, these days an exporter itself through shale oil, will suffer in the same way as traditional exporters in the Middle East.

Historically, oil markets have been considered good at predicting recessions, although in this case the causation might go the other way.

At this point the industry might be starting to consider that the best place to store oil is a natural one – leaving it in the ground.

Authors: Christina Nikitopoulos, Senior Lecturer, Finance Discipline Group, University of Technology Sydney

Read more https://theconversation.com/what-just-happened-to-the-price-of-oil-136842

Writers Wanted

I regret stopping breastfeeding. How do I start again?

arrow_forward

The missing question from New Zealand's cannabis debate: what about personal freedom and individual rights?

arrow_forward

The Conversation
INTERWEBS DIGITAL AGENCY

Politics

Did BLM Really Change the US Police Work?

The Black Lives Matter (BLM) movement has proven that the power of the state rests in the hands of the people it governs. Following the death of 46-year-old black American George Floyd in a case of ...

a Guest Writer - avatar a Guest Writer

Scott Morrison: the right man at the right time

Australia is not at war with another nation or ideology in August 2020 but the nation is in conflict. There are serious threats from China and there are many challenges flowing from the pandemic tha...

Greg Rogers - avatar Greg Rogers

Prime Minister National Cabinet Statement

The National Cabinet met today to discuss Australia’s COVID-19 response, the Victoria outbreak, easing restrictions, helping Australians prepare to go back to work in a COVID-safe environment an...

Scott Morrison - avatar Scott Morrison

Business News

What happens to all those pallets?

Pallets — they're not something everyday people often give much thought to. But they're an integral part of any business which receives or distributes large quantities of goods. But once the goo...

News Company - avatar News Company

Ten tips for landing a freelance transcription job

Transcription jobs are known to be popular in the field of freelancing. They offer fantastic job opportunities to a lot of people, but there are some scammers who wait to cheat the freelancers. ...

News Company - avatar News Company

How To Remove Rubbish More Effectively

It can be a big task to remove household rubbish. The hardest part is finding the best way to get rid of your junk. It can be very overwhelming to know exactly where to start with so many option...

News Company - avatar News Company



News Company Media Core

Content & Technology Connecting Global Audiences

More Information - Less Opinion