Analysis by Mounia El Khawand, Staff Writer

April 21st, 2020

Since the beginning of the confinement, countless people have stated, in internationally televised speeches as much as in casual conversations, that we are living in extraordinary and historic times. On Monday, April 20th of 2020, these claims have once again been proven true when, for the first time in history, the price of a barrel of oils tumbled into the negatives. West Texas Intermediate (WTI), the US benchmark for oil prices, reached an unprecedented low of -$40.32 a barrel, before slightly adjusting its fall, with the price settling at -$37.63. To put the numbers into practice, this means that oil suppliers would pay money for customers to take oil off their hands.

Oil prices are distinguished by a number of peculiarities. Prices vary depending on the variety (or grade) of crude, its place of origin, and the date upon which it will be delivered. Oil that is meant to be delivered in May have crashed below zero, while June prices have also lost 16% of their value to reach $21. This comes as a sharp contrast to the prices the market was boasting in January, which stood at $65.

The COVID-19 pandemic was a death knell for a multitude of industries, and even the black gold has lost its shine. Indeed, the strict travel bans, and confinement policies have caused a series of chain-reactions. With flights being grounded, motorized movement critically restrained, and all sorts of businesses and operations frozen, all whilst governments double their efforts to take on the viral outbreak – the demand for oil has all but vanished, leaving the world inundated by the once-prized fossil fuel.

This glut of barrels has consequently raised the critical issue of a shortage of storage. The capacities of Cushing, Oklahoma, the heart of US storage, and the delivery point of choice when it comes to American crude futures contracts, are nearing exhaustion. Only 21 million barrels of free storage remain, out of a total capacity of 80 million barrels. 

However, the Coronavirus’ latest daunting challenge extends far beyond the United States. 

Indeed, 60% of the assessed 6.8 billion barrels of storage worldwide have already been filled up at an alarmingly increasing rate. 

On April 12, in a bid to alleviate the losses, the Organizations of Petroleum Exporting Countries (OPEC) and Russia, with the backing of US President Donald Trump, agreed to cut back oil production by 10%(approximately 9.7 million barrels a day), a record amount, and the largest slash in oil production to have ever been approved. Unfortunately, even agreements of unprecedented proportions, will not be sufficient to remedy the issue. 

Analysts predict that, in April alone, oil demand will plummet by three times that. Only an adjustment in oil demand could realistically begin to pull the industry out of the bearish market it has found itself in. However, this does not seem likely to happen in the foreseeable future, at least, not until travel restrictions and stringent confinement policies are eased, matters which entirely depend on the evolution of the battle against the pandemic.

COVID-19 holds the fate of yet another multi-billion-dollar industry in its hands.

While oil-exporting countries are faced with this new burden, it comes a slight respite to Lebanon, an oil-importing country, which has been caught in the throes of the worst economic recession to date. This sudden decrease in oil prices could very well ease the stranglehold that had petrified the country long before the coronavirus outbreak reared its head.