Coronavirus causes more harm to oil prices than OPEC dispute
The coronavirus pandemic harms the oil market more than the price dispute between OPEC and its allies, Rusty Braziel, RBN Energy CEO said on Monday.
RBN Energy is a privately held fundamentals analytics company based in Houston. Known for its energy markets consultancy, it plays a role between physical markets and financial markets.
Braziel assumed that the role of Saudi Arabia and Russia in the crisis is 15%, while 85% is of Coronavirus pandemic, which has stagnated the global economy.
US oil prices turned negative
Oil prices fell below zero for the first time in history. West Texas Intermediate plunged to negative $37.63 per barrel on Monday. As a result, the May futures contract lost all of its value.
At the beginning of this year, the price of barrels was above $60.
The oil price war between Russia and Saudi Arabia and the downturn caused by the US government’s attempts to stop the spread of Coronavirus hit the crude oil prices.
In March, a dispute between OPEC and its allies, led by Saudi Arabia and Russia, resulted in a significant fall in crude prices. Moreover, restrictions on travel and quarantines over the globe drained demand for oil.
Earlier this month, OPEC and OPEC+ agreed to produce 10 million BPD. Still, the crisis caused by the Coronavirus persists. Braziel said that the whole world is oversupplied with crude oil while there is not sufficient storage capacity.
What does a delayed Coronavirus mean for the physical market?
Braziel notes that the phenomenon in the oil market indicates a paper-market problem.
Braziel explained that the phenomenon in the oil market is not just an issue with physical barrels. It reflects a “paper-market” problem.
Futures contracts trade by the month. The June contract remains above $20 per barrel. Braziel says that it was a pressure on the futures market. Any company that purchased a contract is forced to receive physical barrels. That’s what they call convergence. The futures market and the cash market concentrate on the final day of the contract, the analyst stated.
However, if the conditions remain, the difficulties in the paper market can extend to the physical barrel market. The longer the Coronavirus lasts, and supply levels don’t match demand, the more storage capacity continues to fill up. When it happens, the physical market will experience negative prices.
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