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At the beginning of the year, the world was still in order. From the United States, the new corona virus appeared to be a Chinese affair, and the local economy was fine. WTI (West Texas Intermediate) crude oil costs around $ 60 per barrel.
Then the virus paralyzed everyone, the price of oil plummeted and hit record lows until yesterday afternoon, sometimes it was less than $ 37 a barrel! For the first time, anyone who bought oil from producers got money. A barrel of WTI is currently trading at $ 1.50.
Billions of people around the world are currently staying home to curb the spread of the virus. As a result, the demand has been broken. And at a rate at which the offer could not adapt.
It continues to occur
Storage capacities are also very limited in the US. USA Refineries, storage facilities, and even oil tankers have been rapidly filling since the start of the crisis. You hardly know where to put black gold anymore. Production cannot always be easily shut down overnight, especially with the fracking process that is rampant in the United States.
Furthermore, oil-producing countries have been unable to agree to a cut in their production for a long time. Even under pressure from the President of the United States, Donald Trump, a cut was agreed, but it will only take effect in May and does not go far enough to meet the lower demand. Also, the May futures contract for US WTI oil. USA Expires on Tuesday. In such contracts, the seller agrees to deliver a specific quantity of goods at a fixed price and date.
The boom and crisis have always been part of the oil industry. There have been massive price fluctuations in recent decades. The last time four years ago, when a barrel of WTI was trading at $ 26. As in the past, bankruptcies are now happening. Indebted corporations and those with little financial buffer will not survive this crisis, hundreds of thousands of workers will be released.
Whoever moves first loses
But the main question is how the largely unregulated US oil market can curb overproduction. Compared to Russia, Saudi Arabia, or Venezuela with their state oil companies, this is almost impossible to control centrally in the United States, says oil expert Michael Webber of the University of Texas. There are 1,000 oil producers in the western Texas oil state alone. The problem is that nobody wants to take the first step and cut production.
A bit like Mikado: whoever moves first loses. However, Webber says production stops will definitely occur. In recent weeks, there has even been an occasional call for regulation of the industry. Several companies jointly and orderly asked to cut production and bear the loss together.
If you look at how hateful the regulations are in the American oil industry, you show how extraordinary the times are for this industry. And how great despair has become. You don’t have to be a prophet to say that the price of oil will only really recover when the crown crisis has bottomed out. It is indisputable that this time is approaching. It is questionable how long it will take and at what level demand will stabilize.
Peter Düggeli
United States Correspondent, SRF
