Why did the oil price fall below zero? - EXPERT’S OPINION

The decline in WTI crude price below zero was caused by two reasons, the head of Oil Research Center, economist, and expert Ilham Shaban told Report.

‘First, the price was $17.73 a barrel when the stock exchanges opened in the morning in the US. At this time, there were released reports that the storehouses, which transferred oil to both domestic and foreign markets, are full. After the short-run, the oil price fell to $10, then to $5, and $0 at 11:56 a.m. (8:56 p.m. GMT +4). Gradually, the price fell below zero. It means that the sellers were offering money to those buying oil. Such a situation has never been recorded in world oil history.

The second is that there were reports that 20 tankers with 1 million barrels for each have left Saudi Arabia for the US. These tankers are expected to arrive in the US in mid-May. Of course, the US has enough oil, additional oil created pressure in the market, and affected prices.

Earlier, the US Energy Information Administration released its reports. Thus, we saw the collapse of the oil market in one of the most oil-consuming countries, and decline in all indices in the US stock exchanges with a red line,’ he said.

According to the expert, Brent crude price also dropped yesterday: ‘Russia’s Urals oil was offered at $ -1.63 a barrel for the first time. As is known, European and American markets are under a quarantine regime due to the COVID-19 pandemic, consumption has narrowed, and the situation is still the same. Although some European countries have softened the quarantine regime, production, air transport have stopped, and the consumption fell to the lowest level. Consequently, companies, countries, oil refineries, who took advantage of the decline in oil price, bought a large volume of oil. It means that they stocked energy, and there was no decrease in these reserves. In the end, the oil market has collapsed, and that was an expected situation.’

Ilham Shaban noted that OPEC+ decision to reduce the output by 9.7 million b/d will not cause a rise in oil price: ‘Because this is an indicator of October 2016. In reality, daily output cut 2.5 million barrels for Russia and Saudi Arabia, these figures for March or April are 1.8 million barrels for Russia, 1.3 million barrels for Saudi Arabia. That’s to say if the output cut is 10 million barrels on paper, the output cut is, practically, 6-7 million barrels, even if everyone fulfills its commitment. These are not real results for the market. Because the market has an additional 29 million barrels for outcomes of April. There is no one to buy such a volume of oil, but the production continues. Of course, the oil price must drop. We don’t’ see a union of political power or a group of countries against another group of countries. This is a factor that supplies sharply exceed demand.’