Crude oil prices reached their lowest level since 1986 and have fallen more than 80% since the start of the year to below break-even levels, forcing Canadian producers to cut production.
On Monday afternoon, the price of North American benchmark crude oil West Texas Intermediate (WTI) fell 300% to close at $ 37.63 per barrel, which means producers were paying buyers to take their product.
The WTI shopping center in Cushing, Oklahoma is expected to reach capacity within four weeks.
“We have never seen anything like this before: so much oil, not enough demand and not enough tanks to store it,” said Richard Masson, energy expert, executive member of the School of Public Policy at University of Calgary.
Masson said we got to this point with COVID-19 home orders – because people across North America don’t travel by car or plane as often, there’s been a huge drop in request. In addition, well-supplied airlines and refineries are not necessarily looking for new oil deliveries.
“Global demand has been [previously] about 100 million barrels a day, and with everyone staying at home around the world, demand has dropped by about 30 million barrels a day, “said Masson.
“Even though OPEC is cutting production – storage is filling all over the world.”
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The decline occurred on Monday because oil contracts are traded on a monthly basis, and May contracts for the WTI are up this week. According to Masson, prices have dropped because some companies simply don’t have the space to accept more oil.
“Right now, they [companies] we have to pay $ 35 a barrel for someone to take this oil, “said Masson.
Crude oil futures prices turn negative for the first time in history
After falling briefly into the negatives this weekend, the Alberta-produced Western Canadian Select – whose price is based on a discount compared to the WTI – closed on Monday above $ 9 a barrel, but should also see negative trading days in the future – at least until demand increases – said Masson.
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“The only thing that will really balance this market is that people start driving and flying again, and demand is increasing. “
How does the price of Western Canadian Select oil work?
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Prices for June contracts are still trading above $ 20. But another economic expert said it was optimistic – and even if that number remained, there could be big declines in the future.
“The market thinks there will be less pressure on these contracts, on the inventory space and then [in June]”Said Rory Johnston, managing director and market economist at Price Street Inc.
“I expect that, as we come out of May and the June contract, we will see a sharp rise in prices … but ultimately these prices [will] start falling again to create the storage space market in June. Johnston said.
Johnston agrees that the only thing that will really allow oil prices to rebound will be once the COVID-19 restrictions are lifted and people start to need fuel again – but it also depends on several factors.
” [Not only] whether or not you would start to see the government start reopening the economies – whether or not people follow suit and get out and do things after the economy reopens, “he said.
“It doesn’t seem likely that we will see a huge rebound in air travel anytime soon. “
Inventories fall as US crude oil futures prices turn negative for the first time in history
Kenney calls for federal support
Last week, the federal government announced more than $ 2 billion in support for the industry, the bulk of which goes to cleaning up orphaned and inactive wells.
Premier Jason Kenney said Monday that the negative prices “further underscore the devastating impact of recent events on the province’s largest industry” and that he believes the federal government should provide more support.
“Much more action is needed,” said Kenney. “I join Prime Ministers from coast to coast and many other key leaders in the Canadian economy, including leaders of the largest banks and financial institutions – who understand that this is not a problem in Alberta.
“This is not an industry-specific problem, but it touches the heart of the whole Canadian economy.”
Kenney said he was once again making a public request for federal action.
“If we see the current situation of negative prices continuing for a given period, the implications for this industry are obviously very serious,” he said.
Kenney thanks federal government for supporting energy sector, says more needs to be done
– With files from The Canadian Press
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