Senin, 20 April 2020

Oil price plunges to lowest level since 1999 as world drowns in oversupply - CBC.ca

The economic slowdown caused by COVID-19 is pushing oil prices down to their lowest level in more than 20 years.

The futures contract for West Texas Intermediate lost $6 US a barrel on Monday, going to $11.66 US, the lowest level since 1999. 

The price of oil is plunging because there's very little demand for it, and oil companies are running out of places to store it. Storage tanks at the U.S. hub of Cushing, Okla., are now holding 55 million barrels of crude, which is their highest level since 2018.

Storage on land is filling up everywhere, so some producers have taken to storing their excess oil at sea, renting tankers to float around aimlessly to store the crude until a higher price or buyer can be found. Rates for the biggest oil tankers have tripled in less than two weeks to more than $100,000 a day as producers scramble to secure space.

"Floating storage remains the only outlet for a mismatched production and consumption backdrop," Evercore analyst Jonathan Chappell said in a note to clients last week.

Market sending signal

Crude storage is spiking because there's not enough demand for the stuff that's already out there. The oil cartel known as OPEC tried to address that earlier this month by promising to pump 10 million fewer barrels of oil every day, but even that huge cut isn't enough to offset the corresponding drop in demand.

Lockdowns, travel bans and the general economic slowdown associated with the COVID-19 pandemic have reduced demand for oil by about 25 million barrels a day, so OPEC turning off the spigots by 10 million barely makes a dent.

"If your bathtub is about to overflow and you turn down the tap a little, it will still overflow," oil analyst Bjarne Schieldrop with SEB Research said Monday.

"Rather than Donald Trump ... telling the oil market or oil producers what to do, it is now the oil price which is the oil market dictator," he said. "It is saying, 'Shut down production because we have too much!'"

Canada's oil price plunges

WTI isn't the only oil blend there's too much of. The type of oil from Canada's oilsands is known as Western Canadian Select and it typically trades at a discount of between $10 and $15 to WTI, because it is harder to transport and refine.

Alberta Premier Jason Kenney tweeted on Monday that the price of WCS actually dipped into negative territory overnight — meaning Canadian oil companies are functionally having to pay to get rid of their product.

CBC News has not been able to independently verify that barrels of Western Canada Select in fact traded hands at negative prices, but hedge fund executive Pierre Andurand of Andurand Capital said negative prices make sense in the current climate. 

"There is no limit to the downside to prices when inventories and pipelines are full. Negative prices are possible," he tweeted. "I am not saying it will happen. If it does it would be very short-lived. But just be careful out there."

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2020-04-20 13:49:00Z
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