Are we going to remember today, April 20th, as the “Black Monday” for the world oil market?
Let’s review important information.
One of the most important markers, the West Texas Intermediate (WTI), trading at less than zero dollars per barrel.
According to data from the New York Stock Exchange (NYMEX), future sales of the WTI marker today reach a value of -$2.22/barrel.
The lowest value recorded in its history.
Michael McCarthy, expert at CMC Markets, says that the fall of the WTI “evidences an excess” of crude reserves in the Cushing terminal, Oklahoma, USA.
How is it possible that crude oil can be sold below zero dollars? What’s the reason for this?
The case of today’s WTI value means the crude oil consumers, as well as its producers, have already saturated their inventories and deposits. This is due to a drop in crude oil consumption, which is around 25% globally.
Today, WTI crude operators selling at -$2.22 are actually paying $2.22 per barrel for someone to take barrels away. That is the price when is less than zero, the seller begins to pay for someone to buy it.
The US Energy Information Administration reported that oil inventories rose 19.25 million barrels last week. For many companies it is more profitable in the long term to pay today at a lower value, than having to close oil wells.
The closure of wells is usually expensive due to the specific costs involved with it, but even more so because it costs more to recover a well and start producing from it again. Reason why there’re companies choosing to pay to “sell” crude.
Sukrit Vijayakar, an analyst at Trifecta Consultants, underlines that US refineries are not managing to transform crude oil quickly enough, which explains why there are fewer buyers and their reserves increasing.
Today’s questions about the oil market have to do with what’s the bottom limit for the crude oil value, how long will oil producers be able to keep paying to “sell” and how many wells will close to balance supply against a noticeable decline in demand.