Yesterday, for the first time in history, the price of oil futures turned negative, and for a moment Texas oil went as low as forty dollars.
Of course, Brent oil was around $25. The oil in the Gulf of Mexico was about the same.
But due to the filling up of warehouses in America, the oil at the well has been declared as junk, which means that they have to pay a sum so that someone remembers to take it!
Now, someone who buys crude oil in Oklahoma, to reach an empty warehouse, has to go such a distance that he also needs money. In this way, the price of oil became negative.
Oil consumption has decreased due to Corona. But stopping the production of an oil well is expensive, and the cost of restarting the well is even more. Everyone is waiting and hoping that their competitors will be forced to stop their production.
In 2014, when the price of oil fell, one third of the US oil industry companies defaulted. The remaining companies learned a lesson and saved more cash for such days, and bought new insurance against falling oil prices. For example, Mexico buys one billion dollars of oil price insurance every year.
The producers are making losses, so that the competitor is out of the field. Whoever runs out of money earlier loses the game. Until then, this strange game continues.
This post is written by amirsalimiQ