Quick reading on the historic decline in the price of American crude oil!

oil

The historic decline in the price of American crude oil to a negative value means that something that is inconceivable has occurred. Matters have reached to a point where the crude oil exporters are ready make payments to potential buyers in order to withdraw the existing quantities of oil to their depots. This as a precedent occurrence has not come from vacuum for the observers and the experts in the field for several reasons.

⁃ the sudden and unexpected global economic recession, factories around the globe stopped production operations and tens of millions of people stayed in their homes for weeks due to the health concerns as results of the COVID-19 pandemic. This has brought long-term demands on American crude oil to their lowest levels.

⁃ the fact that oil contracts were not concluded as a result of the lack of clarity in the vision of the timing for the return of the global economy to its normal course of movement and production. Furthermore, the crude oil producers feared the limited areas of stores, at their disposal, to absorb the quantities of newly extracted oil and the lack of spaces to store them. This concern prompted the producers to find quick solutions to empty the current stock.

⁃ Contributed to this drop in oil prices, the sharp disagreement within OPEC, the price struggle between its members, and the failure of quick solutions to try to fix their differences, which left its shattering negative effects on the oil industry.

Such drop in oil prices may not remain for long period of time due to its catastrophic fall over the global economies of countries around the world, especially the” big” and “rich” ones. Having said that,  it is clear that many facts are no longer under control, but rather the developments and fate of the Corona virus crisis have its big say over how things will evolve in the coming days and weeks.

Perhaps the positive point in this turmoil is that the cheap international oil prices may help economies in many countries to quickly return to their activities and at costs that reduce the burden of returning the production movement to its previous era.

Samer Majzoub, Financial Consultant.

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