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Producers 'giving it away'

Oil price rises after falling below zero for first time

Oil rig vid

Oil price slump means producers are giving it away

UPDATE 21 APRIL: US oil prices recovered this morning to trade in positive territory after sinking below zero for the first time.

West Texas Intermediate (WTI) crude for May delivery was up $39 in thin trade at $1.37 a barrel by 0356 GMT after falling to $37.63 a barrel in the previous session.

Global benchmark Brent crude for June delivery was down 20 cents, or 0.8%, at $25.37 per barrel.

As the price dipped into negative territory oil producers were effectively paying buyers to take the commodity off their hands over fears that storage capacity could run out within two weeks.

With the world in the grip of the coronavirus pandemic demand for oil has all but dried up as lockdowns across the world have kept people indoors and factory production has ground to a halt.

As a result, oil firms have resorted to renting tankers to store the surplus supply and that has forced the price of US oil into negative territory.

OGUK, the business lobby for the UK’s offshore oil and gas sector, said the negative price of US oil would affect firms operating in the North Sea.

“The dynamics of this US market are different from those directly driving UK produced Brent but we will not escape the impact,” said OGUK boss Deirdre Michie.

“Ours is not just a trading market; every penny lost spells more uncertainty over jobs,” she said.

However, the collapse is unlikely to lead directly to significant discounts for drivers at the pumps. 

World demand is down 30% but the severe drop in the price on Monday was driven in part by a technicality of the global oil market. Oil is traded on its future price and May futures contracts are due to expire on Tuesday. Traders were keen to offload those holdings to avoid having to take delivery of the oil and incur storage costs.

The oil industry has been struggling with both tumbling demand and a price war among producers about reducing output.

Earlier this month, Opec members and its allies, known as Opec+, finally agreed a record deal to slash global output by about 10% or 9.7 million barrels a day. The deal was the largest cut in oil production ever to have been agreed.

But some analysts said the cuts were not big enough to make a difference. US president Donald Trump later said he expected the real cut to be nearer 20 million barrels.

On Monday he said his administration was considering halting Saudi crude oil imports as a way to help the US drilling industry.

Stephen Innes, chief global market strategist at Axicorp, said: “It hasn’t taken long for the market to recognise that the Opec+ deal will not, in its present form, be enough to balance oil markets.”

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