What happened to oil and what is the reason


April 20, oil prices fell


Yesterday, on 20 April, everyone’s attention was towards the record fall in oil prices. Investors’ concern about overcrowded oil storage facilities and declining global demand for the most valuable resource, the WTI US oil price fell by ten percent. At the beginning of trading – to $ 8.84 per barrel, then to $ 3, later the price reached $ 0.01 per barrel. After that, the whole world was surprised by the quotes in the negative zone – they went from zero to $ 40. After US oil, Russian oil was also breaking records and was priced in the red. Why did this happen and does it mean that people will pay extra at gas stations?

This happened for the first time with oil. However, if you look, the negative value was related to futures, a financial instrument that is backed by oil, i.e. to contracts for the supply of raw materials over a certain period of time. And this promise was May, they ended today, April 21. And given the low demand for oil worldwide, yesterday investors tried to get rid of May futures at any cost. Negative also. At the same time, oil prices for delivery in June are above $ 20 per barrel.

In order not to take oil in hand (in this case, it would have to be taken out and stored in the nearest storage, respectively, to give way too much money), the owners of the May futures also agreed to pay the buyers extra.

Source: The New York Times

What are the reasons for the historical decline

In the context of the coronavirus pandemic, global oil demand has dropped significantly – according to various estimates, around 30%. At the same time, oil storage facilities are filling up quickly – many of them are already full in the United States. Since the beginning of March, oil reserves in the Cushing City of Oshin, one of the main centers of the US crude oil trade, have risen by nearly 50%, reports BBC. Market participants have high expectations for May, when, according to new agreements, OPEC + countries will start reducing oil production. But even then, it turns out that about 20% of the oil on the market is superficial, experts say. And the allotted tanks will run for a limited time.

Will the fall affect the Ukrainian market

The sharp fall in oil prices on April 20 will have almost no effect on the Ukrainian market. In the comments about Director of economic programs of the Ukrainian Institute of the Future Anatoly Amelin said.

The Ukrainian market for petroleum products is a premium, with an informal cartel conspiracy of market participants. Falling oil prices will not result in a solid drop in the cost of motor fuel. First, Ukrainian chains bought oil products at an oil price of about $ 60, and would not reduce the price until they sold them. They will reduce the purchase of cheap oil and reduce the average price, ”said Amelin.

The expert also said that the current decline is a temporary phenomenon. The next step will be the insolvency of companies, especially the American, who produce shale oil. Russia will also reduce the number of working wells. After the restoration of the global economy, quarantine is lifted, demand for oil will begin to rise and, accordingly, prices will rise. Therefore, the current state is temporary.

Read: Russia breaks OPEC + deal: Stock and oil prices fall: what is happening


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