A Historic Day in The Oil Industry as Crude Oil Spirals Below $1

A week after the historic agreement between OPEC and non-OPEC nations last week, crude oil collapsed unprecedentedly below 0 on Monday. The day will be marked in history of oil and gas sector as WTI crude was priced at $0.01 at 14:20 eastern time and at 14:22 eastern time, it collapsed to -$1.43 which fifteen minutes later, fell gradually to -$20 for the May contract. Burning in the flame of coronavirus and lockdown measures to contain it, crude melted to reach a negative territory closing out the day at -$37 per barrel.

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That truth behind the unprecedented price slump

Industrialists say that the sudden crash since Monday is because the May crude oil futures contract was about to expire on Tuesday (21st April), so June and July prices are not expected to be this catastrophic and bet that the crude will regain values to the previous levels of around $20.

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Some players are also agreeing to the fact that the decline in price is because there are no more vessels to fill the oil, so those who are holding oil will have to look for buyers and empty their cargo vessels for the next few days before oil returns to its previous levels. Although OPEC+ had agreed for the production cuts, but this was not meant for April. Moreover, as per Industrialists, the cuts are not enough to nullify the demand destruction caused due to the pandemic.

Impact of this freefall on global industries

Losses

  • The offshore drilling market is set to be one of the worst hit sectors

Without available storage, and production shutdowns happening, which is a costly endeavour the price crash indicates that producers are awaiting the buyers to take the oil off their hands. The situation becomes troublesome for U.S. drillers who have already shed 260 rigs in five weeks and are likely to continue with production halts if the storage fills ups with this rate.

  • Global Indexes closed almost red!

As soon as the crude oil dived on Monday, the Energy stocks started bearing the pressure. Following are some industry leaders which witnessed significant decline in their share after the crude lost all its gains in the past few days:

  1. Sasol’s year to date loss went down to 85.83% on Tuesday morning. The chemicals group share fell by almost a quarter to R43.51, a fall by almost 21.76%. The company has already been battered in 2020 due to decline in the demand which further heightened because of increased expenditure at its Lake Charles project in the U.S. which suffered and explosion in early 2020.
  2. Schlumberger suffered the blow as the crude turned to negative territory and confirmed that the demand destruction has caused a grave uncertainty in the market. The company shares fell by 5.23% on Tuesday.
  3. As the market opened on Tuesday, the Dow Jones Industrial Average plunged by more than 500 points, or 2.3% and the Nasdaq Composite slid nearly 150 points, or 1.75%.
  4. Share price of India’s Reliance Industries fell 6.43% to INR 1164, whereas ONGC stock lost 8.71% to INR 67.6 on BSE. Stock of Indian oil explorer OIL India fell 6.84% to INR 84.4. Indian Oil share price fell 4.91% to INR 83.3 on BSE.

 

Gains Natural Gas producers are likely to benefit from the massive drop in crude oil prices as this will pressurize rigs to shut meaning less associated natural gas. Industrialists anticipate that a significant decrease in the natural gas supply is on the cards, which is backed by an increase in weather-driven demand expectations over the weekend. The May Nymex gas futures contract rose, and settled the on Monday at $1.924, up 17.1 cents from Friday’s close.

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Source: ChemAnalyst