Senin, 20 April 2020

Oil price plunges to lowest level since 1986 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 30 years.

The most current futures contract for West Texas Intermediate fell by $8 US a barrel on Monday, going as low as $10.10 US in a plunge of more than 40 per cent.

If that level holds until the end of the day, it will be the lowest closing price for WTI since March 1986.

The oil price is especially volatile on Monday because it's the last trading day for oil contracted to be delivered in May. Traders are scrambling to settle their positions before actual delivery of the oil gets finalized on Tuesday, at which point oil for June delivery will be the benchmark price.

The contract for oil to be delivered next month is plunging because anyone caught owning it as of the end of business on Monday will have to find a place to store the oil soon, a task that's getting harder and harder of late.

The price is going down because there's very little demand for oil, and the world is running out of places to store the excess. 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 aimlessly to store the crude until a higher price or buyer can be found. Rates for the biggest oil tankers have soared as producers scramble to secure space to keep the crude they don't know what else to do with.

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

The going rate for the biggest oil tankers in the world hit $165,000 a day this weekend, Chappell calculates, but despite that up-front cost, "it is difficult to envision a scenario where floating storage is not economic and required over the coming months."

As supply vastly outpaces demand, oil companies have started storing excess oil in floating tankers with no destination, waiting for prices to rebound. (Marcelo del Pozo/Bloomberg)

That's 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.

"The oil price is now ordering producers to halt production and it is happening at high speed and in an unorderly fashion. This is creating damage to production and some of it will never come back online again."

Canada's oil price plunges

Canadian oil producers are among those in danger of turning off the taps if these prices persist. 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.

Raymond James analyst Jeremy McCrea told CBC News in an interview that he expects the price of WCS will seesaw above and below the $0 level for a little while yet.

"We did see WCS go negative this morning," he said in an interview. "As we look forward into the next month it does seem to get a little bit better but with storage so full and getting more full by the day it doesn't look too optimistic over the next couple months."

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," he tweeted. "Negative prices are possible."

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2020-04-20 16:57:00Z
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