“Monday, April 20, will be remembered as the worst day in the history of the oil market” according to an analysis published by XTB broker — the day the price of oil dropped below $0 per barrel.
According to Oilprice.com’s Head of Operations, Tom Kool, the decline is due to a disastrously low close for WTI, the lowest one on record. A grade of crude oil used as a benchmark for pricing, it went for a staggering -$37.63 earlier this week. As the contract for May is set to expire, meaning that delivery or collection must be made, traders are desperately trying to avoid dealing with that responsibility and the ensuing lack of storage space.
What does this mean for the common person?
“Essentially,” the XTB report explains, “we could say that the seller was paying the buyer to take the oil away from them (but), of course, the situation is more complicated than that.”
“In theory, it means that there is a lot of crude oil on the market and producers prefer to store it and sell later for much higher prices. Crude oil at that quantity is simply not needed on the market now.”
However, the report warns that this complete collapse in liquidity could result in inability to roll over position to next month’s contract.
Economic slowdown, caused by the coronavirus pandemic, has resulted in the biggest oversupply on the oil market in history.
Other news outlets echo this concern and question what the future has in store. ZeroHedge wonders whether negative oil prices could become the new normal, while veteran editor, writer and researcher on the topic, Julianne Geiger, sounds the alarm that oil inventories are nearing a breaking point.
The current situation presents a challenge in the ongoing Russian-Saudi oil war, a topic which will, no doubt, continue to develop over the coming months.
Another soap opera leading into war?
With the drumbeats of war already in the background (were they ever silent?) and the whole world waving from their windows in a global cry for unity, collaboration and peace, headlines such as “Oil Wars” do not bring the sense of stability we need right now.
“Russia races to squeeze the US out of Asian Natural Gas Markets.”
Simon Watkins on Oilprice.comThe multi-layered relationship between Russia and Chine has been growing closer and more intense over the past year. Last July, they “staged their first joint air patrol in the Asia-Pacific region, sending the naval and air defences of US satellite countries in the area – Japan, South Korea, and the Philippines – into panic mode.”
Now, they’re determined to push ahead with their “game-changing” US$400 billion ‘Power of Siberia’ gas project, which will move over 38 billion cubic metres of gas annually for 30 years from Eastern Siberia to Northeastern China.
One doesn’t need to be an expert in order to realise the implications. According to Watkins, now that China’s coronavirus cases are reportedly subsiding, “plans for the project are moving quickly ahead and being expanded in scope and scale.” Considering the Chinese state’s involvement in all areas of its citizens’ life — from the economic to the domestic — what will this mean for the future of oil?
As the world grows more aware of the hazards of climate crisis and the need to switch from fossil fuel to more sustainable options, this moment could mark one more turning point in a period full of head-spinning change.