Oil price falls to 18-year low as turmoil persists

Oil price falls to 18-year low as turmoil persists
Oil price falls to 18-year low as turmoil persists
3 Min Read

Daily US Times: The oil price has significantly declined amid coronavirus pandemic. A barrel of Brent Crude has slipped below $20, the lowest since 2002.

A barrel of West Texas Intermediate (WTI), the benchmark for US oil, has slumped to 20% follows negative prices being recorded.

Market experts say negative oil prices on Monday were a “quirk”.

At one point, the price of US oil slumped to minus $37 a barrel but is now back to a positive figure.

Analyst James Trafford of Fidelity International. said: “Yesterday’s price action is best understood as a quirk or peculiarity of futures trading.”

He said: “It isn’t cataclysmic. We don’t see negative oil prices as a new normal, going forward.”

Oil prices have weakened sharply because of a combination of a collapse in global demand and oversupply due to the decline in economic activity caused by coronavirus lockdown measures.

What happened?

The oil price we see reported is actually the future price of oil. Futures essentially contract to deliver the physical commodity at a later date.

So when we look at the price, we actually see the market price for future months.

These contracts need to be rolled over to the subsequent period as the delivery date approaches.

On Monday, for the first time in history, Tte price of a barrel of West Texas Intermediate (WTI) fell into negative territory.

But that only related to the May contract, which was about to expire.

Traders holding the contract were unable to find buyers, because no one with the ability to take delivery wanted it.

Rachel Winter, associate investment director at Killik & Co. explains: “Nobody wants to take delivery of oil next month because there’s nowhere to store it, so the price dropped below zero.”

Storage issues

The collapse in physical demand for crude products like jet fuel and petrol has left storage hubs at capacity or, as one trader put it: “They’re close to the brim.”

For the first time ever, storage at US oil hub Cushing is expected to soon be at capacity as it has already grown to more than 15 million barrels in the past month.

Adam Vettese, an analyst at eToro, said: “Coronavirus is rewriting the rules of the global economy in front of our very eyes.”

The analyst said as oil demand virtually non-existent, this quite amazing sell-off is almost entirely down to fears over storage.

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