It is difficult for the “Black Monday”, April 20, 2020, to pass into the oil industry, as it is the day West Texas Intermediate oil index recorded negative prices of less than one dollar. Explanations differed for this historical event, as the barrel of oil was sold for less than a dollar and at negative prices.
Various interpretations were issued about the event. Is the reason the weakening of the global oil industry during the crisis of “Covid-19”, or is the reason the transactions and speculations in the future markets of petroleum papers for one day for West Texas Oil on the New York Stock Exchange?
Opinions varied about the cause of the event and its implications for the oil industry. Most of the media described the event historically, given the deterioration of the price of US West Texas Intermediate crude oil about 55.90 dollars a barrel, to set a negative record low to about minus 37.63 dollars a barrel, and then fell to minus 40 dollars a barrel. These negative prices, less than one dollar, are historical for this American oil, the indicator against which the rest of US oil is measured. As expected in such an important event, the screens of millions of computers and televisions around the world brought out the news: Oil prices collapsed to less than a dollar.
“The availability of crude oil without allowance, even at (negative) prices in some regions of the world, is a historic event that inflamed the lines of the media,” said Ramzi Salman, the oil expert, former head of the SOMO Foundation for Iraqi Oil Marketing, in a note on the matter. Is it reasonable for matters to deteriorate to the point where obtaining black gold becomes unpaid, or even at negative prices? Oil is like any commodity or consumable item whose price is affected by the budget of supply and demand. What happened recently, and for a day, was a limited sale of oil drums, contracted on paper, and must be received on time in the form of real barrels. But because the buyer was unable to find a consumer or storage site for the quantities to be received, he had to pay amounts of approximately $ 40 for each barrel for whoever received the quantities for storage or consumption, and even burning, which made the loss of the involved dealer the sum of what he originally paid for each barrel (20 -30 dollars), and what he paid for those who received the oil, which could be considered a fine for misreading the market, or greed pending an increase in prices after the meeting of (OPEC) and other producers.
It is useful to mention that the production levels of OPEC members and others during the past year were high, and approached the maximum capacities of most of them, and thus the supply exceeded the demand until the end of 2019. And with the announcement of the invasion of the virus, the reserves and measures taken by various countries since January (January) 2020, demand for crude oil began to contract rapidly, and prices headed for a decline. Because the producers were unable to sell their produce, most resorted to storage on land and giant tankers. Refiners also took advantage of low prices to enhance their commercial storage, as well as some governments to increase their strategic storage, which justifies the absence of untapped storage capacities.
And at the end of the week, on Friday April 24th, Brent oil prices increased for the second time in a week. The reason for the two increases, according to Reuters news agency, is Kuwait and other countries announcing their decision to adjust their production rate, and the administration’s approval of a second huge package of aid to combat the virus. Brent oil rose about a dollar, or 5 percent, to $ 22.40. The price of US oil also rose about $ 1.12, or about 7 percent, to $ 17.62 at the end of the week. These prices range, of course, at minimum levels generally due to the economic recession resulting from the virus, and the general closure in many countries of the world.
* An Iraqi writer specializing in energy matters