You read that right! The Coronavirus has impacted oil producers so hard that they are now paying buyers to get rid of their oil. Demand is at an all-time low, as industries have been shut down indefinitely all across the globe.
Due to the world coming to a complete shutdown, demand for oil has dipped to an all-time low. While the oil industry was already struggling a few months ago, it is now for the first time in history that prices for crude oil have plunged well below $0 a barrel in the US oil trading. These are unprecedented times indeed – something the oil industry couldn't possibly have imagined.
West Texas crude, one of the biggest oil producers in the US, has a futures contract that expired just today. The company saw its price fall into negative territory at minus $37 a barrel. That means that the company was actually paying buyers money to get rid of its oil, occupying the storage. The reason that oil producers will have to sell the oil, even if at a loss, is that they have no space to store the oil they have produced, and without storage space, the companies will probably lose more money and, possibly, their contracts.
Oil refiners are currently rejecting oil barrels like never seen before, and the US oil levels are almost at full capacity. This just shows how oversupplied the US market has become with industries and economic activity coming to a complete halt. Currently, even crude oil explorers have shut down nearly 13 per cent of the drilling in the US, and production facilities are also gradually stopping production, but it isn't happening fast enough to avoid storage capacity from becoming saturated. This inevitably means that storage will have so much overflow of inventory. Oil producers will be unable to sell the oil, as there are currently no buyers.
Oil producers around the globe have been trying to cut production, however, there has been a lot of infighting amongst the US, OPEC, and Russian suppliers. It seems that oil supply is still heavily outweighing the global demand, which is not economically sustainable.
Of course, there has been a ripple effect, as oil companies are trading lower than ever before on the stock market and because of this the S&P 500 fell about 1.8 per cent on April 20th. It doesn't look like things are going to get any better either. It seems that not even the big powerful oil companies who have mandated the control of the world economies for so long can survive the Coronavirus pandemic.
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