- Yep, nobody threw money at us when we showed up at the gas station (we're still hoping they will), but this is still interesting...
We’ve seen plenty of strange stories come to light, as the spread of the coronavirus continues – from those who have taken to protesting lockdown restrictions, teenagers licking toilets, and the mass hoarders spending tens of thousands on toilet roll. Of all the unique stories however, none may seem stranger than the night the price of oil saw the biggest drop in the history of its trading.
There are many businesses that are hitting their stride during this crisis, as they’re able to capitalize on increasing traffic – online gaming has seen a surge in an already successful market, and whilst the betting industry is struggling amidst the cancellation of sports, their counterparts in the online casino space have reported a dramatic increase in traffic. Many consider these as their favorite ways to pass time whilst stuck at home, as consumer behavior shifts towards a vast array of different products. Similar is also true for more traditional forms of media and gaming, in the form of book sales and board games, as they also continue to perform extremely well.
There are those who haven’t been so lucky, however, as we’ve seen those struggling from the very beginning of the pandemic – one of which is the travel industry. Flights have been grounded as borders close to foreign travel, road traffic has seen a huge reduction as many who are urged to stay home follow advice. With fewer planes in the air and fewer cars on the road, comes the reduced demand for fuel – and the impact on a market that is considered to be a cornerstone to society – the pricing of oil.
The prices have been up and down but yesterday saw an unprecedented change – West Texas Intermediate crude oil serves as a benchmark within the US economy for oil pricing, and for the first time in history the price dropped to less than $0. But it went further than that, the price dropped to -$40 per barrel. For those who had access to storage facilities capable of holding the barrels, this means that traders would be paid $40 to take the barrels away from the oil companies.
The contracts for the oil, typically for 10,000 barrels, can be sold to others who have the capacity to hold it, but in this instance the demand is so low that speculators were left trying to find buyers. The speculation is that these oil prices and contracts will continue to see a declining price, as the effects of the coronavirus pandemic continue to take hold. That said, it’s also hard to believe the possibility that prices could fall into the negatives again.
The price did climb again throughout the night before finally settling at -$4.29 as markets in Europe re-opened the following morning. Brent crude is also reporting huge dips in pricing as it continues to fall, since the outbreak of the coronavirus in January. Many eyes will now turn to this as a further indicator, as continued drops could spell more disaster – experts believe this is the likely outcome as lockdowns remain in place, and continue to cause widespread disruption and lower demand for the product.
The drops come amid growing fears that the economy could be on the verge of a global recession as businesses remain closed – questions are being asked whether or not we could see a longer U shaped dip in the economy, or whether or not it would be a faster ‘V’-shaped recovery with a sharp drop, and fast uptick. The complications now could spell the start of something that many were hoping to avoid, as a falling benchmark is never a good sign.
It does provide a unique opportunity for many, however – the falling price gives those with the space to store this an opportunity to dictate price of storage space. It also gives investors who could provide that space, an opportunity to be part of a usually exclusive contract and poise themselves into a position in which they could come out of the other side in a much stronger position. On the flip side of the coin, those who are now selling at a loss, or even paying to move their holdings, the reality is sinking in and the walls may be closing around them as the effects are starting to be felt.
The road to recovery is still a long way out – speculation suggests that it may be up to eighteen months until we see a vaccine in place and widely available. There are also suggestions that in many places, such as the US, social distancing measures could be observed for another two years as the hardest hit country in the world continues to see an increase in cases. Of course, there are many that will keep a close eye on the happenings over the coming weeks and months, but it will be a long time before anyone forgets about the price drop, and the night of free crude oil. Of all the things that have happened during the spread of the epidemic, nothing may be as strange as that.