The long-awaited crash in the oil markets came last week when traders finally realized that oil consumption was so low and production was so high that the world was within weeks of having no place to store crude and oil products. The crash, precipitated by the expiration of the May NY futures contract, was violent, falling from $20 a barrel to a low of minus $37 a barrel, a plunge unprecedented in the history of the oil industry. London’s Brent followed New York’s decline and closed out the week at $22 a barrel.
The global demand for oil is expected to be down by nearly 30 million (or maybe even 40 million) b/d in April, according to the latest estimates. Some forecasts still optimistically assume that demand will bounce back in the second half of the year in a “V-shaped” recovery. Most of these forecasts, however, come from financial institutions that want customers to believe that normalcy will return soon or, in the case of government agencies, are influenced by politicians who wish to remain in office. The more pessimistic forecasts come from the oil trading firms who make money by getting the numbers right.
It was a volatile week as the world’s major oil producers struggled to find a way to raise prices from ruinous levels as the global consumption of oil sank by about a third from pre-virus levels. Reports of new highs in the virus infection count and death toll continue to pour in from all over the world, suggesting that the demand for fossil fuels still has a way to fall.
Last week saw one of the biggest price leaps in the history of the oil industry, with US futures surging from around $20 a barrel at mid-week to a close of $28.34 on Friday. The surprise surge came after President Trump tweeted Thursday morning that the Saudis and Russia were going to cut production by “10 million barrels or may be substantially more.” The tweet came after Trump talked with the Saudi crown prince. Later in the day, Moscow weighed in to say that it was unaware of such an agreement and that the Saudis were making every effort to increase, not cut oil production.