US crude fell to negative value for the first time in history and producers are paying buyers to take it off their hands! We are in completely new territory!
- The coronavirus pandemic has plummeted global travel, transportation and economic activity, sending the demand for crude plummeting by 30% globally.
- Meanwhile supply is plentiful. Oil wells can’t simply be turned off and on like a tap. Put simply there is too much oil, with nowhere to put it 🤷🏻♀️.
- Another problem is that oil producers/traders believe crude prices will rally in the future – this is known as contango – which encourages producers to store oil now and to sell at a later date but there is real pressure on storage (in fact there is currently a shortage of storage).
So what does that mean?
- Potential geopolitical uncertainty.
- The outlook is bleak for America’s oil industry with scores of companies expected to go bust over the coming months.
- Demand will take time to recover – desirability of using oil is already down due to:
- The environmental movement. (The good news is that people in congested cities are seeing blue skies for the first time in years, a progressive force for a clean energy transition).
- Growing concern over the health implications of burning oil.
- Less oil is now used, and what we now use per point of GDP has gone down dramatically over the years.