Amid the Coronavirus pandemic where the demand for many goods and services is falling, crude oil price plummeted by more than 114% on April 20. It went to a minus -$37.63 which is for the first time in history going so down.
Crude oil price reduces due to the decreasing demand for oil in the Corona outbreak and an increasing stockpile of the oil filling out all the storage facilities.
Due to the lack of storage facilities, it is a big question for the oil agencies where to store it. And as the oil production didn’t stop, all the storage facilities got filled and so it took the oil price to negative digits for the first time in history. It is hot news for the US people and everyone is searching for crude oil prices today as it is a surprising thing that has ever happened in the petroleum industry.
The situation currently is such that traders are willing to give the oil for free to the public and some traders are giving money to people to come and take the oil for free. This is incredible as such a situation has never raised before where people are getting money to buy oil.
The director of the North Dakota Department of Mineral Resources, Mr. Lynn Helms raised the concern for the increasing volume of oil and filled storage facilities in the USA. He said that the companies in the oil patch regions are thinking of building large tank farms to store oil in large quantities, they will sell it when the prices rise again. This can be a good solution to the desire need for new storage facilities.
Helms added that the number of North Dakota’s operating oil wells reduced to 3,600 from 16,000. This is obvious as the demand for oil is ever decreasing since the year 2020 started and these oil wells won’t be kept functional, they won’t be permanently shut down but their operational utility will surely decrease.
One of the reasons for the price plunge is the cold war between Saudi Arabia and Russia, both these countries increased oil production and that brought the oil prices very low. The discussion and verbal fight between both these countries were going on for a long time and there was not a solution coming to the discussion which resulted in an increased oil production more than what was required eventually decreasing the oil prices.
Currently, at this point when the crude oil prices collapse, many Saudi oil tankers are approaching the shores of the USA. American senates raised the concern that amid this oil crisis, Saudi Arabia can’t be allowed to flood the US market with more oil as there are no more storage capacities left. Many senates have raised this concern before President Donald Trump and asked to stop this supply. Let’s see now what action does the president takes.
There are chances of many oil workers getting jobless amid this oil crisis. Already, many people have lost their job in the petroleum industry starting from January to the current date due to the impact of the Coronavirus on the economy and now this price plunge will make the situation worse.
It is evident that many people have already lost their jobs and many will be losing in the coming months due to the global economic crisis led by COVID-19. Not only in the petroleum industry but there will be firing of the employees in most of the major sectors of the world. Analysts say that this situation is going to be even more dreadful than the 2008 financial crisis.
The city officials of the various oil-producing regions in the US are worried about the consequences that the oil price plunge is going to bring. Investors will be no longer interested in investing in these regions due to the decreasing demand.
13% of the American drilling fleet got shut down huge last week. The oil contract holders are not going to take any delivery until June, that is for sure, seeing the decreasing demand for oil. When the Corona outbreak lessens and the lockdown restrictions get less severe, then we can expect people to start using vehicles once again and then the demand for the oil will increase. But, seeing the current situation of the world facing this pandemic, it is not expected to see a sudden rise in demand for oil anytime soon.
It is good that the OPEC nations and several other oil-producing nations have agreed to decrease the daily output of oil. This will stop or at least put a brake to the problem of storage facilities getting overfilled as these countries will be decreasing the daily output by 10 million barrels in May.
Let’s hope that the Corona outbreak goes away quickly and no more people get infected by it. If this happens then we can think of the global economy coming on the track once again with the demand for oil increasing exponentially! For more details on it, visit Financeshed.