Oil price under zero: sellers paying buyers
In the throes of the coronavirus pandemic oil prices on the New York Stock Exchange have plunged into the negative for the first time in history. The price of US benchmark WTI (West Texas Intermediate) crude oil for May delivery was minus 37.63 dollars per barrel at the close of trading on Monday. Could the pandemic spell the end of the oil era?
A double-edged sword
Low oil prices do not only bring advantages, Turun Sanomat points out:
“Some experts have already warned that cheap oil could lead to unusual economic turbulence and a generalised drop in prices, or in other words deflation. That's unlikely because the corona crisis will probably be over before that can happen. And the cheap oil will help the economy to recover. In terms of the climate, this leads to two conflicting results. The corona epidemic has reduced emissions more than any restrictions could have done. The low oil prices, however, will preserve traditional energy solutions, because as things stand now it's not worth investing in more environmentally friendly solutions.”
Raw materials giants must focus on alternatives
The coronavirus crisis is accelerating the massive changes faced by the energy industry, the Financial Times comments:
“The drop in prices is in many ways a harbinger of things to come for the energy industry. 'Big Oil' was already out of favour with investors and the general public over its role in climate change. Oil demand could peak sooner than previously expected. The current rout means companies will have to accelerate restructuring plans. Long-cherished dividend payments may have to be cut. The supermajors, including BP and ExxonMobil, will have to boost spending on alternative forms of energy.”
Gas and coal are next
Rzeczpospolita sees the end of the fossil fuel era approaching:
“How spectacular is the fall of this natural resource over which wars and geopolitical struggles have been waged. On Monday evening sellers of the black gold actually had to pay to unload oil from the United States. The high and mighty in the oil countries may still be comforted by the fact that oil extracted from the North Sea has lost only a few percentage points. But already on Tuesday panic could have broken out in the Kremlin because Russian oil was also fetching negative prices. An era is over. ... The negative prices we're seeing on the May oil market will soon also affect other fossil fuels. In a few months' time first gas and then coal prices also stand to plummet.”
Price will go up again sooner or later
Economic consultant Andrey Movchan, on the other hand, sees light at the end of a very long tunnel in a Facebook post taken over from newsru.com:
“What's next? We will continue to wait and suffer. And probably cut production even further - no longer as part of the deal [with Opec], but because nobody is buying the oil. And then the quarantines will end and demand for oil will increase again. ... First excess stocks will be used up (while prices remain stable), then demand will be met by offers from flexible producers (especially of shale oil); then it will prove difficult and complex to replenish the oil wells and demand will surge - then prices will rise. ... And Brent will cost 50 dollars or more per barrel again. But that won't happen today or tomorrow. The oil winter will be long.”
Demand down not just because of the lockdown
The price slump is clearly an effect of the pandemic, economist Mario Deaglio explains in La Stampa:
“The most affected part of the economy is the transport sector. Aviation and road transport in particular, both of which are large consumers of petroleum-based fuel. Today the sky above all industrialised countries is almost empty, as are the motorways. ... On top of that last winter was quite mild, large factories are closed or have cut production and the tanks of the power generators are often just half full. In sum, oil demand in the real economy has declined much faster than GDP in the past few weeks. All of this creates huge difficulties for exporting countries.”
Now only a war can save the oil market
Blogger Alexander Gorny anticipates the worst on Echo of Moscow:
“Oil prices are plunging and the latest news from the stock market, where WTI to be delivered in May hit minus 39.44 dollars a barrel (!!!), gives no reason for optimism. As a result, Brent and Urals will also crash and that'll be the end for us. The oil storage facilities are filled to overflowing and the complete collapse of the oil market is no longer a matter of months but of days or hours. Now this is a terrible thing to say, but the only thing that can save the oil markets is a war in oil-producing regions. Are we ready to pay that price?”