Oil plunges as price turns negative
Steve Ward, News Editor
22 Apr 2020, 11:41 a.m.
US oil prices astonishingly turned negative for the first time in history on Monday (April 20th) as demand continues to drop in light of the coronavirus. This is as measured by the benchmark oil futures contracts price for West Texas Intermediate WTI oil company. Prices have now rebounded slightly from negative territory to positive. UK Brent crude oil prices were also hit, but remained in positive territory.
For a short period on Monday, with May’s futures contracts due to expire, investors sold off their holdings and plunged the oil price into negative territory. Storage facilities are warning they are close to capacity, with no one buying the oil for petrol and jet fuel.
‘No-one wants to take delivery of oil now,’ said Neil Wilson, chief market analyst at Markets.com. ‘This is because demand has collapsed in the short term but output cuts by OPEC are yet to take effect so the world is awash with crude with nowhere to put it.’
Two factors have combined to form this perfect storm for oil - oversupply and a huge fall in demand due to the global pandemic. As nations continue lockdown measures to combat Covid-19, the global demand for oil has plummeted. Even before the global coronavirus pandemic production was running high.
At the weekend OPEC+ had agreed to cut production for May and June by 9.7 million barrels of oil per day. OPEC is the Organisation of the Petroleum Exporting Countries. It includes Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria and the Republic of the Congo, led by Saudi Arabia. OPEC+ includes these members plus Russia. The US is not a member of OPEC or OPEC+ but in the competitive oil commodities market it cannot escape the impact of any OPEC agreement.
Now, however, in view of Monday's price collapse in the oil industry, it appears that a May to June production cut may be too late to shore up the market.
The impact of the unprecedented fall oil prices saw a decline in stock market prices and a rise in demand for safe haven precious metals. This has led to a renewed rise in the gold spot price, and continues to show the strength in demand for gold at this time while other commodities like oil continue to slump.