Oil and pumpkin
Whoever would have thought a microorganism would upend the world, in this bizarre manner? Covid-19 has not spared any country, and the worst affected nations are in the Global North, which boasts the most advanced healthcare systems.
Time was when powerful oil companies could even hold the world to ransom, but their black gold is losing its value, albeit temporarily. The worst is yet to come as the global demand for oil is extremely low; it is not likely to increase significantly, in the foreseeable future. The world is currently drenched in oil thanks to lockdowns.
In a jaw-dropping turn of events, the price of the main US oil benchmark fell below zero, on Monday, for the first time in history, and some traders reportedly had to pay their buyers to remove their oil, which they could not store. The oil prices, however, bounced back to the positive territory later on. The June US crude futures contracts, trading at the time of writing, had also plummeted. Economic analysts prognosticate that if the current trend continues, oil companies may have to ‘pay to sell their product’ over a considerable period of time! It looks as if the oil giants had found themselves in the same predicament as the poor Sri Lankan farmers who have to give away their produce such as pumpkins during gluts.
The global demand for oil has collapsed due to lockdowns, the world over, and the attendant global economic downturn. A price war between Saudi Arabia and Russia, with several others joining in, exacerbated the situation by causing a huge increase in the production of crude for several weeks. When oil prices kept falling rapidly, US President Donald Trump offered his services as a mediator to safeguard the interests of the oil industry and his own country. He used what is described as the red phone of the oil market to defuse tensions and reconcile the warring producers, who finally agreed to draw a line under their hostile actions and reduce their output to stabilise the crashing prices. But the falling demand for oil has put paid to Trump’s efforts to help overcome the crisis, once and for all. He himself is in trouble; he has had to contend with the problem of falling oil prices, at home, while drawing heavy flak for his failure to tackle the Covid-19 crisis effectively. It has been a double whammy for him and the US. Worse, he is now under pressure to reopen America though the so-called curve is far from flattened, and coronavirus is on the march.
The rebounding of American crude prices above zero may be considered a positive sign by the oil industry, but, overall, trouble is far from over for the US as well as others; its storage facilities are filling up fast, according to media reports. The same goes for other nations engaged in the oil business. They, too, are unable to store their oil.
Adversity is said to make strange bedfellows. Oil producing nations are likely to sink their differences and strike another deal to slash the global output further in a bid to prop up crude prices, but the slump in demand is bound to continue at least for a couple of months, as it stands. The Covid-19 crisis is not likely to go away soon. It will be quite a while before airlines resume their operations fully, factories reopen and roads, where fossil fuel burning has decreased drastically, are gutted with vehicles again.
Given the woes of big oil companies, it is the opinion of market analysts that the most profitable part of the petroleum business, at present, is to own storage tankers. If only we had developed the Trincomalee oil tank farm and kept it operational to cater to the growing demand for fuel storage!
Whoever would have thought a microorganism would upend the world, in this bizarre manner? Covid-19 has not spared any country, and the worst affected nations are in the Global North, which boasts the most advanced healthcare systems.
Time was when powerful oil companies could even hold the world to ransom, but their black gold is losing its value, albeit temporarily. The worst is yet to come as the global demand for oil is extremely low; it is not likely to increase significantly, in the foreseeable future. The world is currently drenched in oil thanks to lockdowns.
In a jaw-dropping turn of events, the price of the main US oil benchmark fell below zero, on Monday, for the first time in history, and some traders reportedly had to pay their buyers to remove their oil, which they could not store. The oil prices, however, bounced back to the positive territory later on. The June US crude futures contracts, trading at the time of writing, had also plummeted. Economic analysts prognosticate that if the current trend continues, oil companies may have to ‘pay to sell their product’ over a considerable period of time! It looks as if the oil giants had found themselves in the same predicament as the poor Sri Lankan farmers who have to give away their produce such as pumpkins during gluts.
The global demand for oil has collapsed due to lockdowns, the world over, and the attendant global economic downturn. A price war between Saudi Arabia and Russia, with several others joining in, exacerbated the situation by causing a huge increase in the production of crude for several weeks. When oil prices kept falling rapidly, US President Donald Trump offered his services as a mediator to safeguard the interests of the oil industry and his own country. He used what is described as the red phone of the oil market to defuse tensions and reconcile the warring producers, who finally agreed to draw a line under their hostile actions and reduce their output to stabilise the crashing prices. But the falling demand for oil has put paid to Trump’s efforts to help overcome the crisis, once and for all. He himself is in trouble; he has had to contend with the problem of falling oil prices, at home, while drawing heavy flak for his failure to tackle the Covid-19 crisis effectively. It has been a double whammy for him and the US. Worse, he is now under pressure to reopen America though the so-called curve is far from flattened, and coronavirus is on the march.
The rebounding of American crude prices above zero may be considered a positive sign by the oil industry, but, overall, trouble is far from over for the US as well as others; its storage facilities are filling up fast, according to media reports. The same goes for other nations engaged in the oil business. They, too, are unable to store their oil.
Adversity is said to make strange bedfellows. Oil producing nations are likely to sink their differences and strike another deal to slash the global output further in a bid to prop up crude prices, but the slump in demand is bound to continue at least for a couple of months, as it stands. The Covid-19 crisis is not likely to go away soon. It will be quite a while before airlines resume their operations fully, factories reopen and roads, where fossil fuel burning has decreased drastically, are gutted with vehicles again.
Given the woes of big oil companies, it is the opinion of market analysts that the most profitable part of the petroleum business, at present, is to own storage tankers. If only we had developed the Trincomalee oil tank farm and kept it operational to cater to the growing demand for fuel storage!
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