By
Tolu Ajiboye
April 23rd, 2024
The Brent price has now crashed to its lowest point in over 20 years, as the oil market continues to depreciate. Just recently, the WTI futures have fallen below zero for the first time in its history.
The breakdown in the oil market is still ongoing, as the coronavirus pandemic continues to bite hard. In a not-so-surprising turn of events, the Brent price – the international oil benchmark – has crashed and is now trading less than $16 per barrel.
The pandemic has basically shut down normal life as several countries impose restrictions. At the moment, most countries have closed their borders, and there’s no movement in or out. Furthermore, airlines have grounded almost all of their planes and oil companies are selling next to nothing. Because of this, there is an abundance of oil supply and no demand. This inadequacy in demand has crashed the Brent price.
Speaking to CNBC’s Street Signs Asia, Rystad Energy’s head of analysis and senior partner Per Magnus Nysveen predicts that the Brent price will crash even further. According to him, being able to store oil is “a kind of buffer” for the oil market. Typically, storage wouldn’t get so full because there’s enough demand so that storage facilities are not overwhelmed. However, now that there’s no demand, that buffer is gone.
“The world is running out of place to store the oil…When the supply and demand balance is positive or negative, then you can build or draw from storage. But when the storage gets full, then there is no buffer for this very strong imbalance that we’re seeing.”
Recently, OPEC+ ran into issues when Russia and Saudi Arabia could not reach an agreement on cutting down oil production. This disagreement seemingly began the storage problem. However, the restrictions placed all over the world have now made things a lot worse.
Brent crude LCOc1 fell and hit $15.98, its lowest in more than 20 years, since June 1999. At the time, there was also a problem with storage, causing an abundance in supply because the world was needlessly concerned about the Millennium Bug. At 11:30 GMT, Brent was trading at $19.31.
OPEC+ has now reached an agreement to cut production by 9.7 million barrels per day.
Brent Price Follows WTI Crash
The chaos in the oil market was first confirmed with the West Texas Intermediate (WTI), the North American oil benchmark. The WTI futures fell below zero for the first time in all of its history. This plunge also affected both the S&P 500 and the Dow Jones Industrial Average (DIJA). Even as lawmakers in the U.S. plan to introduce further measures to breathe life into the economy, the Dow lost almost 600 points, falling to 23,650.44. The S&P 500 lost 1.8%. The Nasdaq Composite also fell to 8,560.73, after losing 1%.
The crash also affected the Bitcoin market. Bitcoin fell below $7,000 as it reacted to recent developments. Many think that there might not be a direct correlation between Bitcoin and oil. However, the relationship between the financial markets (S&P 500 and the Dow), may have affected Bitcoin directly. The halving is expected on May 12, and the community hopes prices will spike in response.