Comment: with Trump, MBS and Putin in charge, negative oil prices, here we come
You’ve heard of negative interest rates, but how about negative oil prices?
Bar-room talk in the oil market — if bar rooms were allowed — is all that the oil price is now so low that companies could resort to giving the stuff away, or even paying to have it taken off their hands.
And to think, they used to call it black gold.
The industry is in the grip of an unprecedented set of circumstances. Demand has been crippled by coronavirus, while supply has been ramped up by Saudi Arabia and Russia.
Analysts estimate world storage capacity will run out in about two weeks.
Lease costs at Europe’s Antwerp storage base are surging 50% to 100% as capacity runs out.
Worse still, refineries are shutting down as demand for petrol, jet fuel and other finished products has stopped due to Covid-19 lockdowns.
That will leave oil companies nowhere to send their crude, having to pay people to take it away.
Why can’t they just switch off production?
Engineering complexities of oil wells mean it’s not as simple as just turning off a tap. Output has to be reduced gradually. Stop it altogether, and it can be difficult to turn back on again.
Hence, oilers prefer to take negative prices.
The US government overnight announced it would allow producers access to its emergency storage facilities. But that won’t last for ever, and is no help to anyone outside the US shale industry.
Donald Trump raised hopes in a tweet last night that the Saudis would be cutting production soon, but it proved a forlorn hope for now. The oil price spiked, and today fell back.
With the price in the hands of Covid-19, Saudi Prince MBS, Putin and Trump, negative oil prices here we come.
Little wonder green investments have beaten the market lately.
