Thread by @iamSANhedrin

Lets talk about #Oil and why the price of the #US benchmark #WTI West Texas Intermediate has turned negative FOR THE FIRST TIME EVER...

Some of you are waking up to what might read or sound like another disaster. Just when you were learning how to deal with #COVID19, you hear about a so called plunge in the #Price of #Oil. But what does it mean to have oil in negative territory & why is that the case? Lets see...

In the main we will talk a bit about simple matters of #supply & #demand while touching on the #future as far as #consumer outlooks & #perception / #confidence are concerned. I would like us to start in 2016, a quick recap...what happened to #Oil?

In 2016, as response to falling #Oil prices on the back of a slow in #global #demand, oil producing countries got together & agreed to jointly control production levels to boost #prices. Makes sense for them, since oil #export #revenues are lions share of total revenue...

The prevailing #global #economic situation in 2016 was more an example of slow #growth coupled with a #China (2nd largest economy in the world) rebalancing (trying to move from export to consumption drivien growth) & global #MonetaryPolicy normalisation (slowly rise in rates)

The #Economic environment in 2016 was not too bad, but it wasnt too great either. In a way, the agreement between #Oil producing countries #OPEC x Non-OPEC to foster greater coherency in global supply given #BusinessCycles was a crowning achievement. Let's fast forward to 2019..

So #OPEC x Non-OPEC joined forces in 2016 to try prop up the #global #price of #Oil. Towards the end of 2019 oil was dealing with slow demand as geopolitical #tensions & #trade uncertainity dominated the narrative. Also important, high output of #US #Shale oil depressed prices

Naturally, in light of the prevailing #global #economic malaisenin 2019 you'd expect #OPEC x Non-OPEC to powwow again & agree to keep #production suppressed to boost #oil #prices. Indeed, in December of 2019, that is what they did.

Before we move ahead a few steps, take a look at what had been happening to the #global #price of #oil in #dollar terms druing all this time. Here we have two prices of oil, #Brent & #WTI. Talk about a rollercoaster...

In January of 2020 #global #economic prospects looked rosy. This on the back of relief in #trade tensions. But, it was short lived, on account of the #CoronaVirus #Disease of 2019 #Covid19 that was to lead to total #LockDown of economic activity, starting with #China...

Lets fast forward to April 2020. By now, the world is being ravaged by #COVID19, casualties are in the thousands. In attempts to #FlattenTheCurve of #Infection, control measures include #SocialDistancing & #Economic #Lockdown. The result, severly depressed #consumer #demand...

Whats interesting about April 2020 is that we saw a total collapse in #global #oil #prices during this time owing in large part to slow global #demand given #COVID19 #infection control measures. But maybe im getting ahead of myself, let's go back one month, to March 2020...

#OPEC x Non-OPEC. #SaudiArabia x #Russia collaboration was tight since 2016..They managed to come together with other partner countries to "control" #global #oil #prices along global #BusinessCycles. However, in March 2020, it all collapsed as Russia didnt want to cut anymore...

While all of this is happening, #US #oil production was being reved up to record levels. BUT the squabble between #Russia & #SaudiArabia was posing downside risks to #global #prices & this was particularly hurting US oil producers...

Okay, back to April. In April #OPEC x Non-OPEC had a succession of meetings to sing Kumbaya. They resuscitated commitments to cuts. However, it was too little too late, as compounding factors (beyond their control) drove global #oil #prices down to historic lows...

As far as what has caused the #WTI measure of #global #oil #prices to fall so drasrically in April 2020 to below negative, thats due to a number of things. Chief of which is a slow in global demand due to #Covid19 #Infection control measures...

In an environment where #global #economic activity is halted & #socialdistancing has people in their homes, one's #outlook & #perception of the #future is bleak. Especially given rising unemployment. Global #supply of #oil outstrips #demand, prices drop, inventories pile...

In closing, from a #household perspective, low #Oil prices mean low fuel prices. So, expect low petrol, paraffin price etc. From an oil #exporting country, it means low #revenues & upticks in #macroeconomic #vulnerability. Can #OPEC x Non-OPEC save the day? Not without a #vaccine

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Lets talk about #Oil and why the price of the #US benchmark #WTI West Texas Intermediate has turned negative FOR THE EVER...

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