Vanishing demand and a glut of supply have combined to heavily impact the US benchmark fuel, with prices dropping from $18.27 to close at -$37.63 a barrel on Monday – down over 300 percent from the previous day’s close. It’s the first time the crude oil futures contract has ever traded in the negative since the New York Mercantile Exchange (NYMEX) started trading it in 1983.
The collapse in oil markets comes amid a generalized economic downturn, with the coronavirus pandemic plunging most of the world’s economies into a downward spiral many believe will be the deepest since the Great Depression of the 1930s.
ALSO ON RT.COMDow drops 500 points amid coronavirus concerns & oil price collapse
Global oil storage is currently reaching its limits, and while OPEC recently secured a 9.7 million barrel per day cut in production, the US Department of Energy is nevertheless weighing the idea of paying domestic producers to simply leave the oil in the ground so as not to further depress prices.
With May’s futures contracts set to expire on Tuesday, investors are scrambling to unload their positions, eyeing the already-glutted market and concerned about being left with a valueless commodity.
As the futures contracts hovered at record lows, oil tankers are reportedly languishing at sea, unable to find places to store their bounty onshore. Demand for the commodity has dropped an estimated 30 percent worldwide amid the coronavirus crisis.
ALSO ON RT.COM
…from PressTV, Tehran
[ Editor’s Note: Gordon saw this coming a week ago. All land based storage facilities were filled up, which triggered a scramble for the floating storage option, pushing super tankers up to $35,000 a day tankers.
Downward prices are pushed not only with over production, but by storage facilities being filled, as when demand comes back, the storage facilities can fill the supply, depressing well head purchasing.
Some big gambles are being made on grabbing cheap oil to resell later, one hell of a wild bet in my book. The production cuts came, and Trump was right for a change when the first 10 million barrel a day cut was followed with another 10 million the following week.
In a way, that was a no brainer based on how long producers can keep pumping oil when there is no place to put it. Hence, we have the $11 per barrel West Texas price today. Those who are the most financially leveraged are going to lose big time.
Those who can ride things out to the bottom, to buy in at the low and catch the rebound, will be able to buy a bigger yacht. An overall path of economic devastation will ensue, with wealth more centralized than it was, a strong hint as to who some of the perpetrators of this event might have been… Jim W. Dean ]
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– First published ... April 20, 2020 –
US oil prices dived to 22-year lows at just $11 Monday after crashing almost 40 percent in a market flooded with crude and slammed by evaporating demand in the face of the coronavirus pandemic.
Just before 1200 GMT, the US benchmark West Texas Intermediate (WTI) crude for May delivery tanked to $11.04 — the lowest level since 1998.
Trade, however, was also technically driven as investors closed out their positions ahead of the May contract expiry Monday. The June contract was down 11.9 percent at $22.06.
“The real problem of the global supply-demand imbalance has started to really manifest itself in prices,” said Rystad Energy analyst Bjornar Tonhaugen.
“As production continues relatively unscathed, storage is filling up by the day. The world is using less and less oil and producers now feel how this translates in prices.”
The European benchmark contract, London Brent North Sea oil for June delivery, was down 6.1 percent at $26.38 per barrel. Signs that the coronavirus may have peaked in Europe and the United States failed to lift Asian and European financial markets generally.
Traders are instead becoming more and more concerned that oil storage facilities are reaching their limits, as stockpiles continue to build owing to the crash in demand caused by the COVID-19 pandemic.
Analysts said this month’s agreement between OPEC and its peers to slash output by 10 million barrels a day was having little impact because of the virus lockdowns and travel restrictions that are keeping billions of people at home.
WTI was hit particularly hard as its main US storage facilities in Cushing, Oklahoma, were filling up, with Trifecta Consultants analyst Sukrit Vijayakar saying refineries were not processing crude fast enough.
There are also plenty of supplies from the Middle East with no buyers as “freight costs are high”, he told AFP.
AxiCorp’s Stephen Innes added: “It’s a dump at all cost as no one… wants delivery of oil, with Cushing storage facilities filling by the minute. “It hasn’t taken long for the market to recognise that the OPEC+ deal will not, in its present form, be enough to balance oil markets.”
Stock markets were mostly lower despite governments starting to consider how and when to ease the lockdowns that have crippled the global economy.
Italy, Spain, France and Britain reported drops in daily death tolls and slowing infection rates, while Germany began allowing some shops to reopen and Norway restarted nurseries.
‘No time to get cocky’
In the US, Andrew Cuomo, governor of badly hit New York state, said the disease was “on the descent”, though he cautioned it was “no time to get cocky”.
Mounting evidence suggests that the lockdowns and social distancing are slowing the spread of the virus. That has intensified planning in many countries to begin loosening curbs on movement and easing the crushing pressure on national economies.
Investors are keeping an eye on Washington, where Congress and the White House are working towards a $450 billion economic relief plan for small business to add to the trillions already pledged to support the economy.
Big-name companies including IBM, Netflix and Coca-Cola are also due to deliver their earnings reports.
Key figures around 1200 GMT
West Texas Intermediate: DOWN 38 percent at $11.04 per barrel
Brent North Sea crude: DOWN 6.1 percent at $26.38 per barrel
London – FTSE 100: DOWN 0.8 percent at 5,740.37 points
Frankfurt – DAX 30: DOWN 1.4 percent at 10,479.39
Paris – CAC 40: DOWN 1.3 percent at 4,439.88
Milan – FTSE MIB: DOWN 1.4 percent at 16,824.83
Madrid – IBEX 35: DOWN 2.1 percent at 6,733.70
EURO STOXX 50: DOWN 1.4 percent at 2,848.16
Tokyo – Nikkei 225: DOWN 1.2 percent at 19,669.12 (close)
Hong Kong – Hang Seng: DOWN 0.2 percent at 24,330.02 (close)
Shanghai – Composite: UP 0.5 percent at 2,852.55 (close)
New York – Dow: UP 3.0 percent at 24,242.49 (Friday close)
Euro/dollar: UP at $1.0876 from $1.0875 at 2100 GMT Friday
Dollar/yen: UP at 107.72 yen from 107.54
Pound/dollar: DOWN at $1.2454 from $1.2499
Euro/pound: UP at 87.31 pence from 87.01 pence
(Source: AFP)
Jim W. Dean is VT Editor Emeritus. He was an active editor on VT from 2010-2022. He was involved in operations, development, and writing, plus an active schedule of TV and radio interviews. He now writes and posts periodically for VT.
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Consider this retraction of demand a trailer for the near future when oil begins to seriously decline, and supplies will be seriously limited. Then, it won’t be social distancing, it will be stay in place. In my area, too many ignorant fools drive vehicles that cast longer shadows than the empire state building.
I went to do maintenance on my tenant’s place, and paid $1.19/gallon for 87-octane in southern Wisconsin.
Years ago after the 74 embargo there was such a surplus that we created the Strategic Oil Reserve. Some of which was pumped into a salt dome never to be recovered. Sold, lost or stolen, monies were made. We’ll be seeing more shenanigans for sure.
..yeah and our brilliant leader topped off our strategic reserves at 30 a barrel and told everyone how smart he is…it is not like these guys did not see this coming…kinda seems that the whole Saudi, Russian, american oil talks was all theater….
The largest oil storages are in the USA and Saudi Arabia. Russia can accumulate far far less volume of oil. We got nowhere to keep the oil, ’cause our buttheads in oil industry were always oriented to push it abroad for $. And they never fkn cared about inner demands in the country. Now, this covid paralized the airflights, people stopped using cars, etc. No market to sell. But our Russian oil/fuel mafia will never lower the price of fuel for our citizens -never, never and never. Only higher. Even when a barrel would cost minus $500. And there is another, serious problem – our system of oil wells, pipelines are constructed for constant pumping and pushing. You can’t just shut the oil well.
When the war over oil prices started, it was explained to me that Russia could produce oil profitably if the price was only 20USD per barrel, but the Saudis and US (shale oil from fracking) need the price to be 60USD to turn a profit. Russia may still make a small profit at 11USD, whereas the US and Saudis will go bust at that price. So long may Russia keep the oilfields pumping and screw the US and Saudi criminal oligarchies. Just a shame the rank and file Americans and Saudis will probably suffer some economic turmoil and hardship as a result.
In our country’s budget there is a rule: oil price $42,4. If the price is higher, these extra money go to the national Fund. If the price is lower, they start compensating deficits by taking money out of this Fund.
1 liter of Midgrade/plus – the analog of our АИ-95. In this 1 liter of fuel there are:
20% VAT, 30% MET, 21% excise taxes, 7% oil production costs, 7% gas station expenses, 6.5% profit (wholesale and retail), 8.5% processing and transportation.
So, all lost money by this oil/gas system will be compensated by government, but the heaviest burden will fall on 140 millions of sheep in Russia, including me. As always.
If they stop pumping maybe some of those reservoirs will fill up. Mother earth will provide.
Of course price of filling my SUV wont change, tax increases to pay for this virus outfall will offset price drop of the product.
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