(NewsReady.com) – April 20, 2020, marks another “first time in history” headline. With COVID-19 lockdowns keeping people at home, the demand for oil has plummeted. On this day, the industry’s American benchmark West Texas Intermediate (WTI) crude oil futures for May 2020 fell to approximately negative $37 per barrel. Yes, that’s $37 below zero.
THREAD: Sharing my perspective today – I’ve worked in Oil & Gas for 25+ years and now serve on the Texas House Energy Resources Committee. The price crash in WTI (West Texas Intermediate Crude) today is unprecedented. #LetsTalkData #txlege #OilPrices
— Jon Rosenthal (@Jon_RosenthalTX) April 20, 2020
“Futures” mean there are people who are contractually obligated to pay for oil shipments in May for $XX.XX per barrel from producers. They are now faced with minimal numbers of buyers because demand has plummeted. So they aren’t saddled with the expense of storing the oil, they’re willing to pay someone else to take over their position as the buyer and in doing so, the responsibility.
The crash caused a ripple effect across the financial markets with the Dow Jones, NASDAQ, and S&P 500 all closing lower. There could be a significant impact on banks and creditors as well, since another major industry may not have the wherewithal to repay their debts.
The novel coronavirus that from all indications originated in Wuhan, China, is wreaking havoc on an unprecedented scale in modern history. The cost in human lives and the world economies has been heavy, but it will eventually pass, and a state of equilibrium will return. Until then, let’s take the advice given to Great Britain during World War II: “keep calm and carry on.”
4/21/2020 Update: As things move into trading on June futures, the freefall seems to be continuing. When the markets opened today, the price was approximately $20 per barrel, but by mid-afternoon had dropped to just under $12.
Some experts see this trend continuing as the oil-producing countries continue operations regardless of the current glut in supply. It’s an odd strategy since one of the first things taught in Economics101 is low demand plus high supply equals low price.
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