Lowest priced oil [futures] in History!
Just over two weeks ago we witness the lowest ever recorded oil futures price. In this article Mark Viljoen takes a closer look at what may have caused this.
Many people may look at that headline and argue that it is impossible, since normally everything starts from say zero and then progresses upwards. The world’s first commercial oil well was hand dug in Poland in 1853 and shortly thereafter, the world’s first refinery was founded in Jaslo, Poland. How then can we have experienced the “Lowest Oil Price in History!” nearly 167 years later?
The truth is oil markets have been trending downwards for quite some time now. Since the peak of over USD 14,000 US Crude has tumbled to today’s USD 1.440 and is still dropping! In the same time span Brent crude has come from similar highs and is now trading at 2.299 USD!
As shocking as that may be, firstly it is a chart trend, extending back to 2008 and therefore is not solely caused by the Covid19 “pandemic” and secondly one can argue that this price is still not the “Lowest Priced Oil In History”.
However, in the world of commodity futures which is where most oil is traded, we arrived at a point today (21st April 2020) where this is indeed so, if only due to 1) an anomaly in the manner in which the commodity is traded and 2) the international lockdowns so many countries have imposed coupled with the obvious travel bans.
Quoted directly from an article written by Caleb Silver, editor in chief of Investopedia, the situation currently exists as follows:
“In another one of those, “I’d never thought I’d live to see the day,” moments, crude oil prices fell below zero for the first time in history. More specifically, futures contracts tied to the delivery of West Texas Intermediate oil (WTI), for May, fell more than 100% to settle at negative $37.63 per barrel, meaning producers would pay traders to take the oil off their hands.
This particular futures contract was set to expire tomorrow, in that buyers of the oil would have to take physical possession of those barrels at the prices they bid for them up until today. The problem is, there’s literally no room to store the oil that will accumulate unused next month, so no one is willing to pay to store it. They’d rather pay you to keep it.
Meanwhile prices for the October WTI contract sold at $34 per barrel today, so there is clearly a sign for demand in the fall. Today’s price collapse was more a market anomaly than the scary headline it portends to be. It is shocking and unprecedented, but it’s more of a symptom of the way oil is traded than a sign of the fossil fuel apocalypse.
The collapse in current oil prices, combined with the hope that economic activity will resume by autumn, has created a market condition called contango—in which prices for a commodity are higher in the future than they are in the present.”
As previously mentioned the overall trend has been on the cards since 2008, which brings me to another very important point about todays so called Covid19 driven markets and that is that it simply is not true!
By this I mean that if one looks at nearly every single major chart in the world, the overall trend was already established many, many years prior to the unprecedented Covid19 scare. This is why experienced and learned financial people know and understand that contrary to the general opinion that “The News Makes the Markets” it is in fact the Markets that make the news.
Economics and poverty have fueled wars and revolutions, throughout mankind’s history and even historians, with hindsight, can look back and see exactly how the terms and conditions of the Treaty of Versailles, led directly to the Second World War. Germany and many other parts of the world were economic powder kegs, just waiting to explode, Hitler was simply a time convenient catalyst and but for him many thousands of other persons or factors could have lit the fuse to what was already a highly explosive economic situation.
If we ignore the technically false, but futures traded, sensationalism of that Oil price and look deeper at the overall trend, just maybe, certain economic factors are trying to give us a very real heads up regarding real problems the world is soon to face!
Today we have whole continents (Africa and South America) in our global village having those self-same problems! One could say the entire “Third World” is experiencing what the Parisian revolutionaries and Germany did prior to their “explosion”!
Our history has proven time and time again that within the Economic trends, lies a veritable “Chrystal Ball” type potential to forecast the future. The bottom line is that we had better start paying attention!
