On Monday 20th
of April something unprecedented happened, crude oil prices has fallen below 0$
per barrel. That means that sellers were actually paying buyers to take
contracts off their hands. The price has gone negative for the May contracts in
US only, but nevertheless it was the all-time low price for oil in history. But
what was the cause, and how is it even possible?!
The prices
for oil were already low, because of initial lockdowns in China in February, the
oil price has significantly fallen down. Everybody was expecting that the
prices will rebound quickly as it’s a China story. When cases in Italy started rising,
oil prices started to roll over. Prices plummeted further when Saudi Arabia and
Russia, were unable to reach an oil production cut deal, this caused oil prices
to drop to the lowest since 2008. In April US helped to broker a deal between
them, Saudi Arabia and Russia agreed to cut crude oil production for 9.7
million barrels a day, which is more that 20%. Unfortunately it was too little,
too late.
Demand for oil plunged due to coronavirus lockdowns, everyone is driving less, less planes fly because of locked borders, less oil is used by manufacturing. The supply on the other hand is still the same, and oil is building up in stockpiles. When they began to reach their max capacity, and there weren’t any buyers for 0$, producers had to find the cheapest way of getting rid of some oil, and it was to pay someone to take it.
Contrary to
common sense, it was much cheaper to pay someone to take some of your product, than
to limit the supply. It’s extremely expensive to shut down the oil well, and once
it is shut down, sometimes it’s impossible to start again. That’s why at first
the oil producers tried to find stockpiles where they could store their product,
but the storage capabilities are not endless and when the stockpiles started to
full up, storage costs surpassed the profits. That was the moment when giving oil
for free and even paying as much as 40$ per barrel was the most economically viable
choice.
It’s unclear
what will happen next, the situation is unprecedented and even the seasoned
traders don’t know what to expect, but some feat that it might be a beginning
of the new economic crisis.
1. Were you aware that oil prices fallen below 0$?
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
3. Do you think that we are on the verge of new economic crisis?
1. Were you aware that oil prices fallen below 0$?
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
3. Do you think that we are on the verge of new economic crisis?
Comments
2. Government helping people? Good joke. If they wanted to help people, they’d lower those stupid taxes which make fuel so expensive. I know that the real reason is the crisis associated with coronavirus and other factors which you mentioned in the article.
3. Didn’t it already start? The stock exchange seems to indicate that the crisis has already begun and the economy is slowly recovering. Maybe it will get worse in the near future. That would not be good.
2. I saw that prices dropped but I didn't know that the situation with oil is so serious. I know that there is less traffic and people stay at home but still it dropped drasticly.
3. Well I think it already begun. We can see it everywhere right now. I think that it will take years before economy recoveres. People say that its not the end and many other parts of economy will suffer in near future.
1. Yes, I knew that. Investing in oil is unfortunately quite complicated, in addition to buying oil we also have to pay for its storage.
2. Yes I did. If our Government cared so much for its citizens, we would not have to pay such high excise ;). Definitely disagreements between Russia and Saudi Arabia and reduced demand have caused such a spectacular fall in oil prices.
3. I think this crisis is at a fairly advanced level. Declines in stock exchanges, millions of people who lost their jobs, printing money, inflation. The longer the economy freezes, the more the crisis will progress and the worse its effects will be.
I wasn't expecting it. A lot of people weren't expecting it either. A lot of people lost their fortunes because they invested in oil-related corporations. The negative price was due to the futures contracts. In the case of negative oil prices that we witnessed. If the buyer on the day of expiration has such a contract, he is obliged to collect a certain load of oil in a given place. If someone bought such a contract then in May he would have to take back that thousand barrels and then, of course, store them somewhere. To get this money and oil one had to choose Cushing in Oklahoma, USA, especially in times of coronavirus pandemic, and then collect 159 thousand litres of oil and bring it to Poland.
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
Fuel prices are low because the price of oil is low because supply is higher than demand. Currently, oil prices are similar to those in 2009. However, there is a difference because then a barrel cost $50. Today it costs 35 dollars. So the government is making money on us, not helping us.
3. Do you think that we are on the verge of new economic crisis?
It is obvious that Poland's GDP fell even by half a percent compared to the first quarter of 2020 and last year. This is the weakest result since 2013. This means that the fight against the coronavirus pandemic, which started in Europe for good in March, absorbed all the fruits of growth that could be achieved in the first two months of the year. Consumers are limiting their expenditures and thus the use of financial services.
Yes, I have read this sometime ago.
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
Yes. I have read it about too. Government’s spokesmen haven’t said anything about it I think.
3. Do you think that we are on the verge of new economic crisis?
Could be. All predictions support the idea of economic crisis. Right now, I can see that there are less job offers for positions I were interested in in jobs sites.
2. I talked about this with my friends who follow the oil industry and it was not a surprise to me. I knew the prices were low and why it happened. Hahaha, of course, all the government does is to help poor people. Maybe the government could now buy huge reserves of oil, so that when the wholesale price of oil returns to normal, they can permanently lower the price.
3.I think so. It is not possible for some industries not to work for several months, and then everything was normal. What's more, the government in Poland gives subsidies and financial aids to companies. I wonder where the money is from? I think that GDP growth will decrease significantly and unemployment will increase. I completely don't understand why social benefits are still paid out? It's just stupidity!
Yes, i wanted to start my adventure with stock exchange and place some money into oil. In last moment i decided to drop this idea because i didn't have time to read more about it and probably i would only lose my money. The problem was because all warehouses was full and it is so expensive to stop extraction oil and start it again. Anyway in Poland price for petrol won't go down so much because our tax is so high.
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
Government doesn't want to help people. To be honest for me it was clear situation which the reason is coronavirus and as i said in first point because of that i wanted to try my luck in stock.
3. Do you think that we are on the verge of new economic crisis?
I am not so sure about that but i think this is true. Current situation is the most painful for small companies but some people can make big money if they will have great idea.
2. Government helping people. Wait. Let's add more. Law and Justice helping people.... what a funny joke. We actually had and still have expensive petrol. Most of its price are taxes alone. If they really wished to help people in times of coronacrisis then petrol would probably cost ~1-2 pln top not ~4+. They'd still earn profit nevertheless. So I corrected every person that mentioned government lowering price of petrol, that they actually made it even more expensive considering its price worldwide. We have to raise people awareness whenever possible.
3. By 'new' you mean other economic crisis than wasting every last drop of money by PiS? Because we're already in economic crisis for quite long time...
No, that was a suprise for me. I'm not that interested in stocks.
2.
As I've written earlier, I wasn't aware that oil prices has fallen down. I'm don't have my own car so I don't need to feul it up. Now that I know the whole story I am also sceptic that government helped people in this way.
3.
That could be the case, some people predicted last year that in 2020 there will be an
economic crises, so covid could be not entirely responsible for that.
They actually didn't. This is a side effect of the modern model of economy.
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
The actual prices aren't low at all. The current offer for the oil is.
3. Do you think that we are on the verge of new economic crisis?
May be, who knows. Might as well start collecting bottlecaps now.
2. I knew it happened because of the low demand of oil. On tv news at 7 pm I’ve heard it’s because of the stock exchange but later at 7:30 pm i’ve heard it’s because of the government XD
3. I think that economic crisis is just behind the corner otherwise government didn’t had to open small businesses despite still rising number of infected people.
No I haven't heard this news. It seems very strange.
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
No I didn't know. I don't think that government would help people with anything for free. I thought it's because of reduced demand.
3. Do you think that we are on the verge of new economic crisis?
I hope not, but everyone says it's very likely.
I didn’t know about this… but wait a minute they will now pay me when I buy oil??
2. Did you know why fuel prices were so low now? Maybe you
believed the government that it was their way to help people?
I don’t know why fuel prices is so low now, but I don’t believe that this is government way to help people unless it's another scam.
3. Do you think that we are on the verge of new economic crisis?
Yes, I think that we are on the verge of new economic crisis but in the news, they say that we are in danger of a smaller or bigger crisis every now and then, so this is nothing new. I only hope that this crisis will not be too big
I've heard some rumours but I didn't actually read the news about that. But that intel is quite surprising, not gonna lie.
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
I didn't know that before, only heard that they've dropped magic 0$. And certainly, I did not believe, that government would help people by giving them oil for free, that would be ridiculous.
3. Do you think that we are on the verge of new economic crisis?
I think that we are on the verge of a new economic crisis because of the coronavirus pandemic. So many small and medium-sized companies have been closed, they are fighting for survival. For example, various factories are running on pennies. Just come and see this life".
2. Yes, I've heard about it before. I wouldn't believe that the government would try to help us by lowering oil prices, it would just encourage people to use their cars more, which would be bad during the pandemic.
3. Of course we are. Unfortunately, the pandemic will lead to an economic crisis, I have no doubts about that.
Yes, I am an active investor and follow up with such news.
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
Yes I knew, as I'm reading a lot about it.
3. Do you think that we are on the verge of a new economic crisis?
I guess yes. There are many reasonable arguments for that. Many sectors very 'cleaned' for these few months.
Yes, that’s really true. But this was some time ago, as far as I know now, oil prices are gradually coming in the current state, it has risen in price at least a week, maybe two weeks ago. It was hard not to notice because it affected the global market, including the currency of many countries of the world. There was even a version that perhaps this crisis had already begun while the price of oil fell below 0. If I am not mistaken, this happened for the first time in all of humanity since people began to produce oil.
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
I do not think that this was somehow regulated by the government. Most likely this came from factors that oil exporting countries could not manipulate. Although there was a version that this happened due to the fact that Saudi Arabia and Russia could not agree on subsequent transactions as was mentioned in you article. This version can also be considered relevant.
3. Do you think that we are on the verge of new economic crisis?
Perhaps yes, the answer to the question can be found in this article, which I read earlier, "Week 9 [18.05 - 24.05] The (un) normal world." Given this, we can say that the global economy is on the verge of a crisis. I would like to know if there are development paths that would allow this to be avoided.
2. Yep, in USA price has dropped a bit. In Poland it has dropped for almost 1 zloty. That's cool. I don't know the real situation, but it looks sweet. Maybe artificial oil price will drop already and we will transfer to alternative energy sources in close future...
3. It may be. But people are not idiots. Especially those who possess money. Businesses are closing to reopen later. I think that everything will be fine. On the other hand there is more space for smaller businesses after a crisis.
Yes I were aware about it. A lot of people lost their money because they invested in oil companies.
The zero price was because of the futures contracts.
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
Yes. Fuel prices are low because supply is higher than demand. However, they still earn profit anyway.
So it is not true that the government lowering price of petrol, that they actually made it even more expensive considering its price worldwide.
3. Do you think that we are on the verge of new economic crisis?
It is obvious that Poland's GDP fell even by half a percent compared to the first quarter of 2020 and last year. Unfortunately, the pandemic will lead to an economic crisis, I have no doubts about that.
Yes, I was aware of it. At the begging, it was a little bit strange for me how this could have happened, but after some time of thinking about it I get used to it and understand why it was like that.
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
Yes, I know that there was a problem, that there was too much oil in the market, while you can't stop digging it, because the cost to stop the whole process and then start it again is too big, so at some point the prices went below 0. No, I don't believe, that it was some governmental help.
3. Do you think that we are on the verge of a new economic crisis?
I think yes. At least, for some countries, which will have problems with recovery after the pandemic ends. I hope it won't be as huge and disastrous as it was in 2008 and after some time the situation will stabilize.
2. I knew that. If the government did anything with excise tax on fuel, it would speak out loud for several months.
3. I think it has begun a long time ago. Perhaps it will only be an exaggerated crisis. But it is certain that many people have already lost their jobs.
2 / I think this is primarily due to quarantine, and in another to the incident between America and Israel.
3 / Yes, this is a very possible result after a sudden isolation quarantine in all countries, but many are trying to solve this problem before it happens.
2. Yes, I was aware why the prices of fuel were so low but didn’t knew all the economic details of it, as I wasn’t this interested in the topic before.
3. Well we are on the verge of economic crisis, not only because of the oil prices fall mentioned in the article but also because of the drought that is developing more and more from year to year now and there’s not much what we can do to stop it. Adding to that current situation caused by pandemic where everything had to stop the crisis is nearer than we may think in my opinion.
2. Haha, good one. No, I would never believe that they could help us with anything. In the end of many price drops, the price went below zero because of the huge supply compiled with the fact that companies run out of space to store the oil so it was produced and couldn’t be stored, therefore oil producers was forced to pay someone to store it for them. At least that what I read.
3. I think the crisis has already begun and as a reason of corona we will face a really hard times in an economy in the near future.
Yes, but it's more tricky than it looks like. It isn't really such a big deal for people that know how this industry works.
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
After reading article I know more than I have known before. I have never believed in any act of altrusim from any goverment :')
3. Do you think that we are on the verge of new economic crisis?
Probably yes, however this is also kind of opportunity for new business and startups and for sure will lead to better hygiene conditions
1. Were you aware that oil prices fallen below 0$?
Yes, I'm following finance news on regular basis and it was quite a big story widely covered. Firstly, I thought it's one of this "onion news" thing, it's hard to believe at the first time hearing about it.
2. Did you know why fuel prices were so low now? Maybe you believed the government that it was their way to help people?
I was already aware of oil prices war between Saudi Arabia and rest of the world, so first I thought it's a consequence of that but once I've read through many coverages of this topic I absolutely understand why it happened it sounds reasonable to me
3. Do you think that we are on the verge of a new economic crisis?
That's a very accurate word - verge. It's either one way or another, you can't stand on the verge forever. I don't know, I'm stressed, but I'm prepared for both