The path ahead remains gloomy for oil as suppliers sell for negative prices for the first time in history
Price of oil falls below $0 a barrel
- Producers find themselves effectively paying to get WTI oil off their hands for the first time in history
- Events could have a lasting impact on the commodity, showing the disruption and dangers the combination of politics and oil can have
- With still no clear signs of returning demand and economists forecasting one of the worst market pullbacks in economic activity in history, volatility in oil was always going to remain
The warning signs have been flashing for a couple of weeks and last night we saw the effect of the continued oversupply of the oil market. With storage overwhelmed, producers were effectively paying to get WTI oil off their hands for the first time in history, as contract expirations approached meaning the need to physically store the asset became a reality.
These events could well have a lasting impact on the commodity which is commonly owned as a safe inflation-protected investment in portfolios and shows the disruption and dangers that the combination of politics and oil can have. Last week’s OPEC deal has had no major impact, which will hurt the Group, but was not unexpected as storage concerns have been raised for months alongside demand being hit by lockdown measures. The lack of impact here may also be a hint at the waning influence of OPEC in the international oil market, with the US being the now single largest producer alongside the growing Russian influence on the market. This may change the dynamics of the industry moving forward.
With still no clear signs of returning demand and economists forecasting one of the worst market pullbacks in economic activity in history, volatility in oil was always going to remain. Airlines are grounded, manufacturing remains weak and general business activity is still generally stagnant, therefore there is a still much uncertainty over when demand will return. In light of this, it’s clear the recent OPEC deal is not enough to balance and stabilise markets. The path ahead remains gloomy for oil as signs of lockdowns easing are nowhere to be seen. Despite new case growth slowing, the caution over a second outbreak could prolong the troubles for some time still, something that oil definitely doesn’t need right now.
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