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It seemed impossible, but nevertheless it happened: the price of US oil. USA It fell into a deep freefall on Monday night, and the fund only hit when it was negative $ 40. Surpluses in the US market were so large that suppliers panicked and their oil had nowhere to go.
On Tuesday, the price approached the zero line, but buyers continued to receive dollars for every barrel they bought, an unprecedented story in the oil trade. On Tuesday, Brent oil, the world’s largest oil price, could no longer resist the downward pressure. It stood at $ 28 over the weekend, but fell below $ 20 a barrel on Tuesday, before the last crown crisis in 2002.
oneHow could the price of US oil suddenly drop?
The West Texas Intermediate Award (WTI) could only drop dramatically off the trapeze due to the crown crisis. It has taken the world oil market out of the lead due to an extreme drop in global oil demand. In addition, however, there were developments that fueled fear only in the United States on Monday.
Globally, the excess supply of oil is colossal. World demand for oil in April is 29 million barrels per day, less than the 100 million barrels consumed daily before the crisis. Loss of air and road traffic are the main causes. The agreement between the OPEC oil cartel and Russia on a huge production cut of 9.7 million barrels during the Easter weekend under the influence of the United States has not rectified this imbalance.
But the situation became serious Monday in the United States. In normal times, the price of US oil faithfully follows “the” price of oil (that of Brent oil), with WTI being around $ 4 a barrel cheaper than Brent in the past year. On Monday night, the price difference increased to $ 60 per barrel.
Monthly ITS contracts were executed on Tuesday futures) with which the parties usually buy oil. The parties that would receive oil in May had no destination and converted their contract en masse to June. Due to all the large surpluses, there was hardly anyone left who wanted to buy ITS.
This will become more acute for WTI than for Brent, because there are fewer opportunities to ship oil to large tankers to create floating storage. The largest Central American oil company is located off the coast in the town of Cushing, Oklahoma. In the last few weeks, this storage has become more complete at a rapid rate.
It was unclear how long it would take for the tanks to flood there. Storage was not yet as full as it had been during a previous peak in 2016 and 2017, and analysts differed on whether storage could last “less than two months” or just “several weeks.” Sometimes, however, the oil stores are not physically full, but they are already reserved by the market parties.
When late afternoon Monday (Dutch time), the main CME trading floor for US oil announced that negative prices were technically an option, the fence was over.
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Shortly after the new OPEC deals, there was skepticism about the measures. Even then they seemed insufficient for a price recovery
two What does this situation mean for the world oil market?
The world market is far from safe. Brent oil fell 8 percent in the afternoon and was trading around $ 20 a barrel. That is a price at which none of the major oil producers, not even Russia and Saudi Arabia, can keep their finances in order. On the one hand, this fact establishes a floor below the price, because almost nobody has an interest in “the” price of oil also turning negative. Brent oil can also be shipped to regions of the world where oil demand is even easier than US oil.
On the other hand, there is no prospect of a rapid recovery. The International Energy Agency forecasts a nearly as large drop in demand for the month of May as it is today, of 26 million barrels per day. Norwegian analyst agency Rystad wrote Tuesday that Brent “is not immune to the possibility of negative prices” and noted the rapid drop in prices on Tuesday.
However, the reduction in production in Russia and the OPEC oil cartel will be agreed soon. It is good that these agreements run until 2022, but in the short term this intervention will certainly not be able to balance supply and demand, if countries already comply with their agreements. “These countries have a reputation that what really happens remains to be seen,” said energy economist Hans van Cleef of ABN Amro.
3Do oil producers in Saudi Arabia and Russia have their way now that America’s oil price is at its lowest point?
It took four days for the OPEC cartel organization to reach agreements with Russia around Easter weekend. The agreement was to collectively produce almost 10 million barrels less per day. That came down to an average drop of about 20 percent. The question of whether these agreements have helped comes too soon, because during the videoconference it was agreed that the oil tap would only be rejected a little from May 1.
In addition to a limited decline in production, Russia and Saudi Arabia (with the US as the world’s top three oil producers) had a common goal earlier this month: to substantially reduce US oil shale oil production. USA In many US states. In the USA, simply making production deals is prohibited. The quantity of barrels of oil will only decrease if the market deteriorates.
“After the failed OPEC conference in March, you could see from the market data that state-owned Saudi Aramco began shipping a large amount of oil to the United States.” Now there is talk of a small navy of oil tankers that is now reaching the coast, “says oil expert Jilles van den Beukel.
That lower oil price is hurting Russia and Saudi Arabia as well, but as many American companies get into trouble, their market share increases.
Oil shale producers are only starting to make money at a price of $ 50 per barrel. Texas oil producer Pioneer Natural Resources has already predicted after the OPEC deal that at a price of $ 35 US output would drop by a quarter (3 million barrels) as a result of bankruptcies.
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The indebted Texas oil and gas sector was already expecting many bankruptcies. And now the blow seems to be much bigger.
4 4 How easy is it to stop oil production?
Demand (approximately 70 million barrels per day) and production (100 million) are currently very different. On the question side, the crown crisis is expected to lose its sharp points, but it will not be soon. And therefore production must continue to decline, especially now that terminals worldwide are filling up.
It is easier for one oil producer to open the faucet a little more smoothly or even to close it than for another. According to Van den Beukel, the Saudis and the Americans have it relatively easy.
“The question is mainly how much effort it takes to restart. Overall, this is the least problem with light oil, like Saudi Aramco and US shale oil.”
It is more difficult for Canadians, who extract a lot of heavy oil from the tar sand. “Then a whole tank is heated with steam and if you stop for a few months the oil will harden,” says Van den Beukel. “Then it will be difficult or even impossible to start production again.” In part of the Russian oil extraction, there are also relatively big problems to restart production. “Especially in older fields, a lot of water comes in and that also makes it difficult to regulate production.”
5 5 Will consumers notice this at the pump?
Service station staff must have had to deal with the necessary jokes on Tuesday. How much will Shell or BP write to the customer’s account and where is the pump with the American gasoline?
Despite the negative prices for STIs, there is not much change for the Dutch gasoline consumer. The price of a liter of gasoline has already fallen more than 10 percent in the past four weeks and it looks like there won’t be much change soon. This has to do with the price structure of a liter of fuel. Only 21 percent of the total price is determined by the price of crude oil. At the current price of gasoline of approximately 1.55 euros, this is not more than 33 cents.
In addition, the costs of refining (manufacture of crude oil, gasoline) and transportation to the service station (more than 10 cents) are added. That includes the profit margins for the producer and the service station.
The Ministry of Finance establishes the basis for the price of gasoline. Excise and VAT are charged at 110 cents per liter, and the price of oil doesn’t change that much.
