crude oil price is down even the 1 cent per barrel in The USA WTI and this is the lowest in the history of OIL market. yesterday It was also gone event negative and it was trading on -2$ per barrel. North Sea Brent crude (currently US $20) has also come under price pressure but it does not dump like WTI USA. This is mainly due to the fact that the storage costs at WTI have exploded, as the US oil warehouse hardly has any free capacity due to overproduction. In contrast to oil production near the coast or on the high seas, such as with Brent, oil tankers cannot be used.
Because of its important properties for the economy, oil is one of the most traded raw materials. It is the basic energy supplier of modern industrialized nations. The two most traded varieties are WTI and Brent.
Brent is the crude oil that is extracted and traded on the European market in Europe, especially in the North Sea. WTI, for West Texas Intermediate, is funded in America and is primarily intended for the US market. Both types of oil have different properties, such as content and composition, different trading venues and different prices.
Futures traders who do not want physical delivery of oil are now forced to sell their contracts at high discounts. After all, there is a lack of storage capacity for excess oil. For this reason, the price of May contracts fell on the New York Mercantile Exchange (NYMEX). For oil futures that expire later, the price discounts are therefore not as high.
One does not have to get lost in the complexities of oil trading in order to recognize that the current situation on the raw material markets illustrates a negative overall situation for all oil producers. Not only the United States but also OPEC countries such as Saudi Arabia and Iran are struggling with low oil prices. In addition, the recent agreement to reduce production volumes is unlikely to lead to prices in the next few months that were previously common.
A barrel of WTI would have to cost around $50 for fracking to pay off in the United States. Production costs in other countries such as Saudi Arabia are significantly lower, but they too have to nibble massively on the fall in prices. The result is clear: Many oil production companies have to close and can no longer work economically. Accordingly, in addition to reducing costs, alternative income opportunities must also be opened up in despair. Even those that initially seem absurd.
Still, the generally low oil price is likely to be worrying for Americans at the moment. A lack of demand and an overproduction of the oil-exporting countries have pushed the price to a level that falls below the profitability limit for shale oil mainly produced in America through expensive fracking. The absolute pain threshold for existing boreholes was $20 at the time and $50 per barrel for opening up new oil wells.
It is now quite inconvenient to buy a May futures contract. Although you get money for it, there is a risk that you will have to pay more money to get it off in time or you will have to physically take the oil off. All the effort of delivering, storing, and reselling would most likely cost more than the money you get.
“Today’s negative settlement price in the May WTI futures contract reflects both the global oversupply of crude oil and high levels of storage utilization in the United States,” the exchange operator said late on Monday.
Traders with long-term leases were probably able to score huge profits. WTI contracts for delivery in June are still trading above $20 a barrel, even though they have fallen from near $60 at the start of the year. Get paid $30-$40 a barrel to take the oil, then sell it forward in the futures market for $20 a barrel.
One day’s trading of a contract on the eve of expiry will not on its own cause significant damage to the US energy sector — but sub-zero prices will tarnish the commodity’s brand as a safe investment, especially among retail investors that piled into oil contracts in recent weeks.
APRIL 20, 2020
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