Following the news that theWest Texas Intermediate (WTI) plunged into negative territory;
Indrajit Sen, Oil & Gas Editor at GlobalData, a leading data and analytics company, offers their view:
“WTI’s dive into negative territory has highlighted just how weak demand for crude oil currently is, and it is a stark warning to oil-producing countries and companies around the world.
“The main factor that has driven WTI into negative pricing is a lack of available storage space the US’ main trading hub at Cushing, Oklahoma, as well as across the US, due to the collapse in demand triggered by the COVID-19 lockdown. Producers have continued to pump oil, despite low oil prices, as stopping production can cause complications and even damage a well, reducing future oil production capacity. The lack of space to store oil due to be delivered in May resulted in traders offering to pay buyers to take their oil contracts so they did not have to take physical delivery.
“WTI’s slide into negative territory does not mean that all of its oil is now worthless or negatively priced. Brent crude, which is already trading its June contract, finished at $28.50 on 20 April, although it fell nearly 24% the next day. Meanwhile, WTI’s June contracts remain in positive territory for now, closing at $22.50 a barrel on 20 April. While storage at Cushing is expected to be full within weeks, Brent is not constrained by this requirement for physical delivery. Unlike WTI, there is no single specific delivery location for Brent crude, which is traded internationally and can be delivered offshore to a variety of locations. If there is a problem with storage capacity at a particular location then the crude can be delivered elsewhere.
“How long WTI will remains in negative territory all depends on the timing and degree of easing of the COVID-19 lockdown measures and subsequent recovery in demand. But the effects on the oil industry will be felt for years.”