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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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Established in 2006 as a Community of Reality

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    Black Monday: The fragility of the oil industry or a bubble in the “paper barrel” markets?

    Rocky
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    • Post n°1

    Black Monday: The fragility of the oil industry or a bubble in the “paper barrel” markets? Empty Black Monday: The fragility of the oil industry or a bubble in the “paper barrel” markets?

    Post by Rocky Tue 06 Aug 2024, 5:01 am

    Black Monday: The fragility of the oil industry or a bubble in the “paper barrel” markets?

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    Black Monday, April 20, 2020, is a day when the benchmark West Texas Intermediate crude oil price hit negative prices of less than $1. There have been various interpretations of this historic event, with a barrel of oil selling for less than a dollar and at negative prices.
    There have been multiple explanations for the event. Was it due to the weakness of the global oil industry during the Covid-19 crisis, or was it due to trading and speculation in the one-day futures markets for West Texas Intermediate oil on the New York Stock Exchange?
    Opinions differed about the cause of the event and its repercussions on the oil industry. Most media outlets described the event as historic, given the collapse of the price of US West Texas Intermediate crude oil to around $55.90 per barrel, recording a record low negative to around minus $37.63 per barrel, and then falling to minus $40 per barrel. These negative prices of less than one dollar are historic for this US oil, the benchmark against which the rest of the US oil is measured. As expected for such an important event, the screens of millions of computers and televisions around the world highlighted the news: Oil prices have collapsed to less than a dollar.
    Oil expert and former head of the Iraqi State Oil Marketing Organization (SOMO), Ramzi Salman, said in a memo on the matter: “The availability of crude oil without compensation, and even at (negative) prices in some parts of the world, was a historic event that ignited the media. Is it reasonable for things to deteriorate to the point that black gold can be obtained without compensation, or even at (negative) prices? Oil, like any commodity or consumer product, its price is affected by the balance of supply and demand. What happened recently, for one day, was a limited sale of oil barrels, contracted on paper, and required to be delivered at the time specified in the contract in the form of real barrels. “However, because the buyer was unable to find a consumer or a storage location for the quantities to be received, he was forced to pay amounts close to $40 per barrel to whoever receives the quantities for storage or consumption, and even burning, which made the loss for the involved trader the total of what he originally paid for each barrel ($20-30), and what he paid to whoever received the oil, which can be considered a penalty for misreading the market, or greed in anticipation of a price increase after the meeting of OPEC and other producers.”
    It is worth noting that OPEC and other members’ production levels over the past year were high, approaching their maximum capacities for most of them, and thus supply exceeded demand until the end of 2019. With the announcement of the virus invasion, and the precautions and measures taken by various countries since January 2020, demand for crude oil began to shrink rapidly, and prices headed down. Since producers were unable to sell their production, most of them resorted to storage on land and in giant tankers. Refineries also took advantage of low prices to boost their commercial storage, as did some governments to increase their strategic storage, which justifies the absence of unused storage capacities.
    At the end of the week, on Friday, April 24, Brent crude prices rose for the second time in a week. The reason for the two increases, according to Reuters, was the announcement by Kuwait and other countries that they would adjust their production rates, and the US administration’s approval of a second massive aid package to combat the virus. The price of Brent crude rose by about a dollar, or 5 percent, to reach $22.40. The price of US oil also rose by about $1.12, or about 7 percent, to reach $17.62 at the end of the week. These prices, of course, are generally at lower levels due to the economic recession resulting from the virus, and the general lockdown in many countries around the world.


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    Added 2024/08/06 - 11:01 AM
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