Oil prices fell below zero: who is concerned and what will happen next

Minus 40 dollars per barrel. The price of oil (if you can call it price) the world has ever seen. Should I be concerned to those who sell oil, and to rejoice for those who buys it — fills the car, the asphalt road or heats the house? Turned edition BBC.

Цены на нефть упали ниже нуля: кому стоит беспокоится и что будет дальше

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Not worth it. Negative price in the US is just a glitch in the matrix, technical failure, financial gamble that has little relationship to the real world. Nobody will pay extra for a full tank at the gas station.

Conventional oil — black, viscous, odorous liquid remains in the price, let the price of this in historical perspective and looks ridiculous. The two main international varieties of oil, which is tied to the price of most others, traded at the same level as a couple of days ago. In the US Texas oil WTI with delivery in June cost $22, and a barrel of European Brent crude at $26.

And that was worth negative $ 40 per barrel, not anymore. Minus the price belonged to the futures financial instrument provided by oil, that is, the contract for the supply of raw materials in a certain period of time.

What happened

Futures was may, it has expired on Tuesday, 21 April. And because oil is now useless, the day before the expiration of the contract, the investors tried to get rid of him at any cost.

Any price is negative.

Not to get oil on his hands, they were ready to pay to those who contract obligated the oil supply. Otherwise, they would have to pick up the oil in Texas and store it in the nearest store in Cushing. Unfortunately, it was filled to capacity.

About it will ever make a film like The Big Short (“shorting”) with Christian Bale. The hero of that tape well before the global financial crisis has put on the market crash of unsecured mortgage loans. Sounds boring, but at the end of the film, he displays a marker on the Board figure: +489% profit.

This time someone put that someone will put against the fact that the oil can cost less than $10 per barrel.

This “someone” did not give the buyers may contract for a nominal $25 per barrel to move in the June contract at $22 to pay a fine of three dollars per barrel. They insisted that selling the contract will not be but ready to put the oil — the real barrels, showmanship.

This one was not signed, people bought a financial contract, not a tank with a viscous fluid. As a result, owners may futures has agreed to pay for something to get rid of them, as for the removal and warehousing of oil they would have to pay a lot more.

Oil too much

In any other situation, the owners of expired contracts may be able to obtain physical oil, Refine it into petroleum products and sell. But it is almost impossible in the conditions of a drastic fall in demand from the exhausted coronavirus economy.

“Black Monday” on the American oil market has happened at a time when world oil demand fell following the economic activity in the world. By about 30%.

The answer was a clumsy reduction of supplies from Russia and the OPEC countries about 10% of the world supply of raw materials.

The reduction is followed only in may. But even then you find that about 20% of oil on the market — extra. To avoid overstocking, the oil need to be stored. But a problem with that.

Storage facilities on the planet filled about three quarters. And the empty quarter — about 1 billion barrels — roughly 10 times the global demand for oil, which before the crisis amounted to about 100 million barrels per day.

Because of the pandemic of coronavirus, the world demand for oil is expected to fall by 30%. That is, traders, refineries and state reserves have somewhere to store 30 million barrels a day. Tanks they will last for a month, to a maximum of six.

And the demand for these stores is phenomenal. Prices for future supplies on the market now above the current, so traders stick to oil based on its price hike in the future. Storage fill up quickly not only on land but also at sea.

Storage facilities in key markets like Singapore and the United States have risen by half. And if the land is kept approximately three billion barrels of oil, due to falling prices, traders began to store oil at sea in tankers that are typically used for transport.

Just a couple of weeks the amount of oil doesn’t go anywhere tankers doubled to 160 million barrels.

More than fifty supertankers, each carrying up to 2 million barrels anchored. In the world there are only 770, and one-third may remain on the roads loaded to the eyeballs to better times, say the traders.

This world has not known since the collapse of the economy in the financial crisis of 2009. But even then in the sea hung only 100 million lost barrels of oil.

Should Russia pay to buyers of its oil?

How will it affect Russia — one of the three leading suppliers of oil to the world market, along with Saudi Arabia and the United States?

The price of Russian Urals is tied to North sea Brent, not WTI, Texas. No negative values in this market is still not observed.

But the current prices are far from perfect.

Party Urals with delivery in early may, are sold at a discount of $3 to the so-called dated Brent — spot price on a specific date on which the market learns only if traders will share this information with agencies.

At this moment, the price of Russian oil is approximately twice lower than that budgeted — 42.4 dollar per barrel. According to the budget rule, when the price rises above the currency accumulated in the stabilization Fund for a rainy day. If it is less, the stabilization Fund spend for current expenses.

Further dynamics of the prices will determine the balance of supply and demand, rather than short-term situation at one of the markets of futures contracts, as happened in the “black Monday”. And this balance is determined only when the world will come out of coronaries.

As previously wrote ForumDaily:

  • Because of the coronavirus have fallen, the price of gasoline and oil.


the cost