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Updated April 20, 2020, 9:36 p.m.
Supply and demand currently diverges widely in the oil market. Because the crown crisis is causing a global economic recession, and therefore less oil is needed. It hit US crude oil particularly hard earlier in the week.
Due to the crown crisis, the price of US crude has failed to a record low. The price of a contract that provides for physical oil delivery in May was negative for the first time since futures trading began in 1983, most recently at less than $ 18.20 per barrel (159 liters). This means that buyers receive money when they are accepted.
On the one hand, this shows how strongly supply and demand in the oil market currently differ. On the other hand, it is a very special phenomenon, as the May futures contract on US oil expires on Tuesday. In these contracts, the seller agrees to deliver a specific quantity of goods, in this case oil, at a fixed price and date.
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Toxic mix of falling demand and high supply
Due to a toxic mix of sharply falling demand and excessively high supply, storage capacities in many countries threaten to be exceeded. In any case, oil investors want to avoid finding a lack of storage space.
The next US light oil futures contract (WTI) cost significantly more on Monday night than the May contract. A barrel of Texas Light Oil (WTI) for June delivery was priced at $ 22.30 that night. The North Sea Brent variety costs $ 26.50 per barrel. However, both prices were clearly in red.
Due to significantly higher prices for future oil deliveries, not just for US oil. In the USA, some market participants spoke of a “super contango”. Such a market situation is characterized by rising oil prices, the further away its physical delivery is in the future. This may be a sign of currently particularly weak demand or particularly high supply. Both currently apply.
Purchase prices continue to fall
The basic situation in the oil market is characterized by too high a supply and demand is falling sharply. The crown crisis is causing a global economic recession, resulting in falling demand for oil, gasoline, and diesel. Large oil producers such as Russia and Saudi Arabia have recently announced significant cuts in production. However, experts doubt whether the reductions are sufficient to match supply and demand.
In the United States in particular, oil storage facilities are at risk of exploding at the seams. Since the end of February, inventories at Cushing’s important delivery location have increased by almost 50 percent. As a result, purchase prices paid continue to drop in the oil-rich region of Texas. Meanwhile, there is even a fear that negative prices will drop soon due to the purchase of crude oil if storage capacities are further reduced. (ash / dpa)
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Teaser image: © © Jacob Ford / dpa
