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Coronavirus causes US oil prices to negative in historic crash: what does this mean?

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Covid-19 continues to impact every aspect of our lives, with continuingly devastating and long-lasting effects. The economy felt another heavy blow on Monday 20th April as the price of West Texas Intermediate crude oil (WTI) plummeted to a record low of negative $37.63.  WTI is traded exclusively across the US and is often used for benchmark pricing.

The price crash came as a result of a number of factors, including the deadline for the May futures contract on Tuesday 21st April and the decrease in storage space. The lockdown imposed to combat the coronavirus has caused a dramatic drop in transport and trade, resulting in a colossal imbalance in US supply and demand of oil. Consequently, storage facilities are rapidly filling up. On Monday traders panicked, going to great lengths to offload their oil, causing the selling price to negative with oil traders paying buyers up to almost $40 per barrel to take the oil off their hands. 

oil traders paid buyers up to almost $40 per barrel to take the oil off their hands. 

Fortunately, since this dramatic crash, the price has soared back to around $17. However, analysts are not convinced this recovery is permanent. In keeping with the theme of the pandemic, the long-term implications of this crash cannot be accurately anticipated. However, it is undoubtable that the US will feel the effects more acutely than the rest of the world.  The outlook for America is bleak, with many companies – particularly independent fracking firms – facing bankruptcy. The future ramifications of this might include a shortage in oil production when restrictions on travel are lifted, forcing oil prices to surge enormously, causing longstanding difficulties across all areas of the economy. 

The future ramifications of this might include a shortage in oil production when restrictions on travel are lifted

There may be a fine silver lining on this cloud, with analysts predicting a potential increase in the popularity of renewable energy as a comparatively cheap alternative – another surprisingly positive outcome of Covid-19 for environmentalists.

Last modified: 25th May 2020

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