Corona effect: Crude Oil becomes ‘Free’ in the USA, first time in history oil trading below zero dollar per barrel

Pune, April 21, 2020: A horrifying example of how and why Coronavirus could have an impact on the global economy was seen in the US markets on Monday. The price of WTI crude oil fell more than 104 percent, down from $ 18 per barrel to below zero dollar per barrel, for the first time in history.

The price of WTI (West Texas Intermediate) crude in futures trading for May was trading below zero dollar -1.43 per barrel discount level until the time of writing this report, according to the news agency Reuters. During this period, the price of Brent crude also fell slightly to $ 26.33 per barrel. Nobody is buying oil in America and the companies want to sell their stock. There is so much unused oil that companies don’t have space to store them.

However, despite this decline, Indian customers are unlikely to get any relief in the prices of petrol and diesel. For more than a month, the prices of petrol and diesel have remained at the same level in the country. The demand for petrol and diesel has come down drastically due to the lockdown.

Indian oil companies say that despite the lowering of the price of crude, they are not yet buying much in the international markets. The reason behind this is that they do not have additional storage capacity. Also, there is confusion about the lockdown. It cannot be said that everything will be normal even after the lockdown ends on May 3. In such a situation, Indian oil companies are not showing much interest in futures deals.

Petroleum companies around the world are reluctant to make more purchases due to lack of storage capacity. This is affecting the demand for oil and prices are also under pressure. Due to the Coronavirus COVID19 outbreak, nearly 200 crore people are locked in homes and more than 60 percent of the vehicles are missing from the roads. Aeroplane flights are also completely closed. In such a situation, the consumption of crude oil has come down drastically.

WTI is a grade of crude oil produced in North America and is established with Brent as the two major benchmarks for crude oil worldwide. Brent crude is used as a benchmark for crude oil prices produced in Africa, Europe and West Asian countries. Two-thirds of the world’s crude oil prices are set under the Brent crude benchmark. Brent crude is more important for Indian companies, as most of their purchases are on this basis. India has started buying oil from the US in the last two years.

The main reason for the decline in demand

Lockdown and travel are banned worldwide to prevent the spread of coronavirus infection. This has led to a huge drop in demand for crude oil. The price war between Saudi Arabia and Russia deepened as the price of oil fell. However, earlier this month the two countries and some other countries together decided to cut production by about 10 million barrels per day to increase the price of oil, but the price continues to fall. Analysts say that the production is not being reduced accordingly to the drop in demand.

Corona worsens the whole world economy

The condition of the whole world including America is worsened due to Coronavirus. This has severely affected the energy sector. Factory operations have slowed down and the demand for oil has fallen drastically due to the slowdown in the aviation sector, which has increased the price pressure. The debt burden on American oil companies is also a threat to the banking and financial sector. If any company goes bankrupt, it will affect the entire economy of America.