Oil prices plummet to lowest level since 1999 as world drowns in oversupply

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The economic slowdown caused by COVID-19 pushes oil prices to their lowest level in more than 20 years.

The West Texas Intermediate futures contract lost US $ 6 a barrel on Monday to US $ 11.66, the lowest level since 1999.

The price of oil plunges because there is very little demand and the oil companies lack places to store it. Storage tanks in the U.S. center of Cushing, Oklahoma, now hold 55 million barrels of crude oil, their highest level since 2018.

Onshore storage is filling up everywhere, so some producers have decided to store their excess oil offshore, renting tankers to float aimlessly to store crude until a higher price or buyer is found . Larger tanker prices have tripled in less than two weeks to more than $ 100,000 a day as producers scramble to find space.

“Floating storage remains the only outlet for an unsuitable production and consumption environment,” Evercore analyst Jonathan Chappell said in a note to clients last week.

Market send signal

Crude storage is increasing because there is not enough demand for the products already available. The oil cartel known as OPEC attempted to solve this problem earlier this month by promising to pump 10 million barrels of oil less every day, but even this huge reduction is not enough to make up for the corresponding drop in demand.

The bottlenecks, travel bans and the general economic downturn associated with the COVID-19 pandemic reduced demand for oil by about 25 million barrels a day, so that OPEC shutting off the taps by 10 million hardly a breakthrough.

“If your bathtub is about to overflow and you turn off the tap a bit, it will always overflow,” oil analyst Bjarne Schieldrop of SEB Research said on Monday.

“Rather than Donald Trump … telling the oil market or the oil producers what to do, the price of oil is now the dictator of the oil market,” he said. “He says,” Stop production because we have too much! “”

Canadian oil prices plummet

WTI is not the only oil mixture that is too much. The type of oil from Canada’s oil sands is known as Western Canadian Select and is generally traded at a discount of between $ 10 and $ 15 at WTI because it is more difficult to transport and refine.

Alberta Premier Jason Kenney tweeted Monday that the price of WCS plunged into negative territory overnight – which means Canadian oil companies have to functionally pay to get rid of their product.

CBC News has not been able to independently verify that barrels of Western Canada Select are actually trading hands at negative prices, but Pierre Andurand, hedge fund manager, Andurand Capital, said that negative prices made sense in the current climate.

“There is no limit to lower prices when stocks and pipelines are full. Negative prices are possible ”, he tweeted. “I’m not saying it will happen. If this is the case, it will be very short-lived. But just be careful over there. “



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