Oil prices in the US have never fallen so sharply in one day – by over 300 percent to -37.63 dollars. Why this is so and what speculators have to do with it.
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Because of the low oil price under pressure: oil refineries have to deal with nasty conditions.
Photo: David Goldman (Keystone)
The price of US oil has collapsed. 159 liters, a barrel of the US oil grade WTI, cost $ 18 on Monday morning. However, ten hours later there can definitely be no question of oil as “black gold”. On the contrary: The price collapsed completely, reaching negative values for the first time. Many experts see black for the most influential of all raw materials.
At the beginning of the year, American oil had cost more than $ 60. When many oil traders left their offices on Friday evening, the price for the US oil was still around $ 18 per barrel, and the incomparable downward slide began on Monday morning. Throughout the day, traders could watch the hourly price drop. Dollars for dollars, cents for cents. Until a barrel of US oil cost minus $ 37.63 – a decrease of 306 percent.
Little demand
The fact that the oil price is collapsing tells a lot about a global economy that is currently slowing down. When factories stop producing and planes stop flying, less oil is needed. In the United States, Corona only buys half as much gasoline, and the demand for aviation gasoline has dropped by more than 70 percent. And there is also little fuel in Switzerland.
But it is striking that especially the American oil price is collapsing so strongly these days. While the European standard variety Brent is still over $ 25, the Americans are particularly struggling. Strictly speaking, this is due to a host of “nodding horses”, that is how the shale oil producers call their metal drilling rigs, which, particularly in Texas, produce the oil from below with a monotonous nod and the characteristic horse heads.
However, since hardly anyone wants the oil anymore, the stores in many regions are now full. “It will be critical at the end of May,” says oil expert Weinberg. Some shale oil producers continue to produce to get some money. “Many have to pay off high mountains of debt,” says oil expert Gabriele Widmann from Deka-Bank.
But observers have to be careful not to be fooled by the Tohuwabohu on the American oil market. The fact that the standard price for the American oil grade WTI collapsed by over 97 percent also had to do with the subtlety of the oil market.
The standard oil price for the standard grade WTI comes at the New York raw material exchange Nymex, on the so-called futures market. The oil traders only trade in financial papers, so-called futures. In plain language: These vehicles give commodity traders the right to have oil delivered in the future. If you want the oil delivered in May, you can buy a May contract. If you only need it in June, a June paper.
Oil as an object of speculation
However, many of the oil traders only want to speculate with the raw material that the oil can never be placed in a tin barrel in front of their own bank towers. Hustle and bustle among some commodity traders, however, apparently arose on Monday: an important deadline on the oil market expires on Tuesday. If you still have a May paper on oil in your books, you will receive the raw material exactly one month later, at the end of May. And the dealers probably wanted to prevent this at all costs.
That is why some speculators quickly sold their May papers in order not to have the oil delivered. And quickly put the money into the June papers. As a result, the price for WTI oil collapsed in May. However, the price for WTI oil in June fell only slightly. “So it’s just a number,” says Weinberg. Investors should not over-interpret them.
So even if the negative oil price shock in the United States had to do with the panic of the dealers, it sends shock waves through the oil industry. Many clammy shale oil producers are on the verge of collapse, countless jobs are at stake.
President Trump could now impose import duties on foreign oil. If that doesn’t work either, the president would have to think more unconventionally: he could pay the shale oil companies money to leave their oil in the ground. “That would be a very effective weapon,” says oil expert Weinberg.
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