[ad_1]
Oil dragged all trading activity on Monday into a black hole that opened up under the markets: “Exceptionally low oil prices are a sign of weak economic activity,” said Peter Cardillo of Spartan Capital Securities. Meanwhile, the price of a barrel of US oil was recovering in Asian markets, slightly above zero. The West Texas Intermediate (WTI) barrel for May delivery opened at $ 0.56, versus $ 37.63 at Monday’s close in New York.
But the wrong thing was done and for history it will be a black Monday, with the New York plaza yielding to the effect of the implosion of the reference barrel price in the United States, the West Texas Intermediate (WTI), for delivery in May. The price ended at $ 37.63 negative.
In practical terms, and as a result of anemic demand for oil amid the new coronavirus pandemic, these red numbers indicate that investors who had the contracts were willing to pay to get rid of them, given the impossibility of warehousing and storage. . buyers
Being a cartelized market, there is a lack of coordination between producer countries (OPEC), particularly between Saudi Arabia and Russia, which were at the top until April, the month in which activity slowed down, but at a time when States United was taking are the helm of exploration.
“We are in a period of deflation,” Peter Cardillo warned, recalling other troubling indicators of the US economy, such as rampant enrollment for unemployment benefits.
Black hole
With producers unable to store and pay $ 37 for customers to take barrels, oil has become an unprecedented burden, an economic cost, even for a day. Just two months ago, the barrel was trading at $ 66, revealing the ill effects the pandemic had in a short period.
However, there is a technical explanation that can serve to mitigate the drop in prices: WTI Texas futures contracts for delivery in May ended on Monday night and that was the immediate factor that led many investors to decide to discard their position, even if it resulted in large losses.
Regardless, regardless of the reasons, US crude had never touched the negative before. Energy consultant Rapidan Energy marks the year 1862, when the first wells began to be discovered in the United States, to glimpse such steep terrain in the oil industry. But then, for several reasons: the initial cost of drilling was immense, given the lack of a mass consumer market.
However, there are other figures that indicate that we are in the midst of a crisis in the oil industry, especially the North American one: a year ago, the country had a thousand facilities in operation, which are now just over half. Furthermore, comparing the indicators of the last four-year period, 2020 will be the first year in which there will be a drop in the country’s oil production, with exports reaching minimum levels that contrast with the recent level of four million barrels per day.
Confinement and wilt
Behind this slide in the oil markets, we inevitably find two fundamental elements: the new coronavirus and the containment measures designed to combat it. However low the price of fuel may be, and in the United States the comparison is made with a bottle of water, now more expensive than gasoline, there is simply no one to sit behind the wheel. Public transportation is in limited demand, and as a result, warehouses do not require continuous supplies.
Ghost cities around the world, parked cars, air fleets parked at airports. However, crude oil accumulates in the reservoirs, with no runoff in sight.
A snowball effect that will be, according to analysts, difficult to reverse. Consultant Douglas Westwood predicted that, even with the prospect of a recovery in demand in the coming months, market prices are expected to remain low as there is a need to dispose of stored crude before drilling rigs resume oil extraction activity. previous levels
Analysts indicate in 2028 that the barrel will once again exceed the value of $ 50 per barrel: “People are concerned because we are going to see so much accumulation that it will be very difficult to correct the situation in the short term and there will be many costs in view of the situation. ” Market difficulties. People are trying to get rid of oil and there are no buyers, ”argues Michael Lynch, president of Strategic Energy & Economic Research, a consultant in the field of oil and natural gas energy.
This is an unsustainable situation for the industry, since the oil companies need a barrel of between 40 and 50 dollars to survive, otherwise they will have to surrender to insolvency. Troubling reality with possible effects on the chain for the global economy as a whole, since, according to the financial rating agency Moody’s, 60% of the huge debt of the oil companies is speculative.
