Crude oil prices plunge below zero

US crude oil jumped more than $20 per barrel  but still traded below $0 after plunging into negative territory for the first time in history, dragged down by a supply glut and sagging demand for crude due to the coronavirus pandemic.

US West Texas Intermediate (WTI) crude for May delivery was up $21.96 at -$15.67 a barrel by 2214 GMT after settling down at a discount of $37.63 a barrel in the previous session.

The May contract expires on Tuesday, while the June contract, which is more actively traded, was up 51 cents, or 2.5%, to $20.94 a barrel.From the level of $ 60 per barrel in the beginning of the year 2020 to the level of $ 20 per barrel by the end of March.

Economic impact on India

• WTI is not included in India’s crude oil basket. This includes only Brent oil and some Gulf oil, so there will be no direct impact on Indian oil imports. But with the fall in oil prices globally, the prices of Indian oil basket also appear to fall.
• If the government gives the benefit of the fall in oil prices to consumers, it will help the government’s economic program after the epidemic as it will increase consumption.

Fact

• The beginning of the problem is organized by the ‘Organization of Petroleum Exporting Countries’ (OPEC) led by Saudi Arabia and OPEC + which also includes Russia, to stabilize oil prices in early March’ OPEC Russia negotiations postponed ‘.
• As a result OPEC countries continued to produce the same amount of oil.
• After the reconciliation between Saudi Arabia and Russia under pressure from the US President, the oil exporting countries decided to cut production by 10 million barrels per day, but even then there was a sharp decrease in the demand for oil.
• The balance between supply and demand deteriorated completely during March and April. The fact to be noted is that cutting oil production or shutting down oil wells is a difficult decision, as restarting it is a costly and cumbersome task.
• Also, if a country cuts production, then this country risks losing market share (export).
• The spread of the Coro na pandemic is still continuing, leading to a declining daily demand for global oil.
• Some estimates claim that aggregate demand will fall by 30% in the coming quarter.
• In the end, the balance of demand-supply or imbalance will determine the prices of oil.

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