Oil prices dropped to a 20-year low today as the coronavirus crisis continues to wreak havoc on global economies.
Russ Mould, investment director at AJ Bell said, “In a sign of the testing times we are living through, the US oil benchmark, WTI, is trading at its lowest level this century.
“Oil is still one of the main fuels for a global economy which is effectively off the road while countries look to contain the coronavirus.
“As a result there is too much supply to meet current levels of demand and oil producers’ cartel OPEC and its affiliates are not cutting production quickly enough. The reality is that they probably couldn’t even if they wanted to.
“WTI is also in a state of ‘super contango’, with the gap between the price paid for oil today and contracts for delivery in future months at its highest level in more than a decade.
“That is encouraging traders to store oil and hold out for higher prices. Today’s barrels of oil are being sold at distressed prices as they struggle to find buyers and amid fears there may not be capacity left to house them.
“The situation is more acute in the US given the reliance on the key infrastructure hub in Cushing, Oklahoma. This helps explain the widening spread between WTI and Brent, the price used outside North America.
“One concern for the market will be the knock-on effect on US banks which lend to a domestic oil industry which will be straining under the pressure of rock-bottom prices.”