Oil price has broken all records on Monday. It sunk to its lowest level in history, dropping into negative pricing as oil supplies overwhelm the globe’s storage capacity. It fell to $0.01 before falling to as low as -$40 a barrel. It is the lowest level that has been recorded since 1983 when the New York Mercantile Exchange began trading oil futures.
The demand for oil has fallen 30% due to COVID-19 pandemic because of which the price of West Texas Intermediate oil came down, and that led a massive surplus of unneeded oil and fuel
Jim Burkhard, the Vice President and head of Oil Markets at IHS Markit states, “There is such a massive supply surplus and very little places to store it, and that’s what’s driving this.”
According to market analysis by the U.S. Energy Information Administration, the US production of oil is expected to be dropped by less than 5% for the rest of the year as the oil companies have already begun limiting their production and have been temporarily capping wells.
Jim adds, “Some companies want to wait out the market before shutting in production, so they’ll pay someone to take it.”
Several departments are suggesting other ways to ease tension in the market. The Department of Energy is making efforts in order to avail 23 million barrels of space on rent within its Strategic Petroleum Reserve to oil companies for which they would pay in oil. Jim has also supported to the storage space solution and noted that additional storage space will only help so much.
Jim includes, “It’s not going to change the overall picture. It could help some companies that may need storage but it’s not going to conjure up demand growth, and demand collapse is the core problem.”
