Difficult to comprehend! Prices of West Texas Crude Oil (WTI) the benchmark for U.S oil falls into negative territory — minus $37.63 a barrel.
Sellers are actually paying buyers to take liquid gold off their hands!
The reason: Covid-19 Pandemic! World economy has come to a juddering halt. American Energy Companies have run out of storage space, both ashore and offshore, hence volumes of unused crude oil is flowing close to the brim.
Crude oil products such as aviation fuel, gasoline and gasoil are not being used by aircrafts that aren’t flying and vehicles that arent plying, world wide.
Traditionally, crude oil is always traded on its FUTURE price. June, 2020 prices for WTI (West Texas Intermediate) plummeted, trading for 20 USD a barrel. Meanwhile, Brent Crude the benchmark used by Europe and rest of the world has already been trading on weaker grounds i.e. around 26 USD a barrel.
Presently the Oil market has coined a new term “contango market.” It simply means, prices in the short-term are way lower than in the coming months. This encourages traders to store oil and sell it in the future at a higher price. Oil is filling up to the brim at a speed that most oil producers did not see coming. The input is more than the output.
Within a month, storage costs onshore and offshore have skyrocketed. Super tankers (Very large Crude Carriers) are being hired at a whopping cost of around 10,00,00 USD a day for a years time charter, 15,00,00 a day for 6 months charter and approximately 20,00,00 USD a day for a single voyage charter.
Earlier this month Organization of the Petroleum Exporting Countries or OPEC members agreed to sign a historic record deal to reduce global output by approximately 10%. The deal was the largest cut in Oil production ever, but experts wonder if that is enough to make a difference.
So what does this translate for Indian consumers? In June 2018, to benefit from the fluctuating International crude and product prices, state-run fuel retailers had already switched to daily price revision, from a fortnightly pricing system.
More so, petrol and diesel prices in India are not linked to that of crude oil per se, but to that of fuel prices in global markets. Besides, with high tax component, consumers may not get the desired relief that they are wishing for.
At the end of the day there are no takers, even for free crude.
 the benchmark for U.S oil falls into negative territory -- minus $37.63 a barrel.){kind=link}