The coronavirus pandemic has caused oil markets to plunge into the negative due to a lack of storage for unused oil.
- Michael Tran, managing director of global energy strategy at RBC Capital Markets, says that there is little to be done about the market nose-diving even further:
“Refiners are rejecting barrels at a historic pace, and with U.S. storage levels sprinting to the brim, market forces will inflict further pain until either we hit rock bottom or COVID clears, whichever comes first, but it looks like the former.”
- As demand decreases and storage is scarce, oil producers are still pumping, resulting in an oversupply of the market and fire sales for producers who don’t have access to storage
- Even though OPEC recently helped end the oil price war between Russia and Saudi Arabia to curb supply, the effort proving too little, too late in the face of a collapse in global demand
- Even before the big price drop, buyers in Texas were offering as little as $2 a barrel and in Asia, bankers are reluctant to give commodity traders the credit to survive as lenders grow ever more fearful about the risk of default
- Retail investors are continuing to invest money into oil futures despite the recent plunge. The U.S. Oil Fund exchange-traded fund saw a record $552 million come in Friday, taking total inflows last week to $1.6 billion
- Though crude explorers shut down 13% of the American drilling fleet last week, production cuts are not occurring quickly enough to alleviate the storage issue
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Read more: https://www.latimes.com/business/story/2020-04-20/oil-prices-plunge-below-zero-wti-may-contract
Nina TurnerEnergy Programs and Communications Coordinator
Janina is a graduate of the Energy Management and Design program at Sonoma State University with experience in non-profits that specialize in sustainability and volunteerism.