All the media are talking about oil, its collapse, crisis, halting trading. What happened to the oil market? And what to expect in the future?
To avoid confusion, let's briefly outline the terminology.
There are several brands of oil on the modern market ; they differ in their chemical and physical properties, composition, place of production, and in price. The main brands are:
- WTI and Light Sweet - mined in the USA;
- Brent - mined in Europe;
- Urals - mined in Russia.
On January 7, 2020, the price of oil reached $ 65.77. After that, a smooth drop in quotations began. The coronavirus epidemic was already actively developing in China, which put pressure on prices. So, since the beginning of the year, in China, oil demand has declined by 20%.
The second factor was the military conflict between the United States and Iran. At first, prices reacted with growth, but since the situation did not develop, quotes resumed their downward movement.
On March 9, 2020, the market reached a record drop in prices. This happened as a result of the unclosed deal between OPEC and Russia.
The total depreciation of oil amounted to 69%! Brent brand oil fell to a minimum of $ 24.52, CL brand oil - $ 20.52, WTI brand oil - $ 20.08, Urals brand oil - $ 23.48.
What factors led to such a rapid decline?
- the global financial and economic crisis – this was felt back in 2019 (a drop in prices for sea freight transportation, the oil price which was not able to update previous highs);
- the coronavirus – a pandemic which struck the global economy (travel bans, work from home, canceled vacations, broken supply chains) It, like a trigger, launched the process of “collapse” of markets, the bursting of soap bubbles, debts;
- the drop in demand – the onset of the global financial and economic crisis and the coronavirus pandemic created a natural decrease in oil demand, making the prices decrease;
- the energy war between OPEC and Russia – OPEC proposed reducing production to 1.5 million barrels per day due to the economic crisis and falling demand, but Russia did not agree. This lead to a price war, where prices can fall long enough until one of the parties decides to make concessions;
- supply growth – all storage facilities are full, and tankers begin to use it as oil storage facilities.
- the dollar liquidity crisis – large company loans, complex financial products built on credit money led to a lack of dollar liquidity and a drop in the value of all goods denominated in dollars. This naturally leads to an accelerating decline in all markets, which reflected in the oil market.
The situation was aggravated by the fact that these factors overlapped. Such synchronism enhanced the effect, speed and depth of the fall in the market, and this situation continues to develop in a negative direction.
