The collapse of oil prices is causing a new wave of deflation for the global economy

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Prices fell The oil Global in a terrifying way for the first time in history, the price of a barrel of West Texas crude fell to below zero, which indicates the willingness of investors to bear the cost of getting rid of crude. The price of a barrel of oil generally depends on factors such as supply, demand and quality. The futures contract that is traded is for a thousand barrels of oil for a month, usually, delivered in Cushing, Oklahoma, for West Texas crude, where energy companies have storage tanks with a capacity of approximately 76 million barrels, and contracts that have fallen below zero represent West Texas crude for a month May which is due today and therefore investors in the Monday session rushed to get rid of them to avoid incurring additional costs for storing oil upon receipt, in the absence of sufficient demand for it in light of the procedures to combat the Corona virus.

In addition, oil buyers are currently facing the problem of Cushing’s storage capacity being maximized.

According to the US Energy Information Administration, 72% of the reservoirs in Cushing, the heart of the US pipeline network, were full of oil as of the end of April 10.

But what does this mean for the consumer?

The collapse of the price of crude oil futures contracts in Cushing will not necessarily translate into a collapse in gasoline prices … This indicates a continued decline in May but will not lead to a free fuel distribution, however, recent low oil prices are likely to provide The American family is between $ 150 and $ 175 this month on fuel purchases, according to experts.

For financially troubled airlines, lower oil prices will make it virtually cheaper to operate flights, which have become nearly empty.

The decline in crude oil futures contracts also indicates that the market does not expect airlines to return many flights to their networks any time soon.

It should be noted that about 30 million barrels per day of oil were stored worldwide, representing 30% of global demand in the past two or three months.

So even if demand returns to pre-SK levels, it will take a long time to consume the stored oil.

The US Bloomberg Agency said that the drop in oil prices to less than zero was a devastating day for the global industry, noting in a report on its website that it would cause a wave of deflation for the global economy which is already suffering from the repercussions of the Corona crisis.

The agency pointed out that yesterday seemed like any two darkest in the worst crisis of the oil market in decades and ended with the collapse of prices to less than zero, and entered the markets in a parallel world where traders are preparing to pay 40 dollars in exchange for taking one barrel of oil. The agency described the move as violent and shocking, and many traders have struggled to explain it.

Doug King, an investor who co-founded a commodities fund, said yesterday that it was devastating to the global oil industry.

Bloomberg states that the downturn was just a severe imbalance as traders prepared to end delivery contracts in May. Elsewhere, the market followed as usual, and Brent crude, the benchmark for Europe in London, ended in a big drop, but still above $ 25 a barrel.

But negative prices revealed a basic fact about the oil market in an era Corona, Which is that the most important commodity in the world is rapidly losing its value because the chronic excessive supply overshadows the world’s crude oil tanks, pipelines and tankers. Ultimately, traders became desperate to avoid having to receive the actual oil because no one needed it and there were fewer and fewer places available to store it.

The agency continues, saying that despite the agreement reached by OPEC less than a week ago to reduce global production by 10%, the oil market crisis is getting worse and will send a deflationary wave through the global economy, which complicates the task facing central banks, which are trying to keep the economy of countries His feet while the Corona epidemic continues to paralyze the travel and trade industry around the world.

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