Affected by factors such as severe oversupply in the U.S. oil market, the expiry of contracts and the decision of Texas to decide whether to reduce production, New York oil prices opened lower on the 20th in early trading, continued to fall intraday, and accelerated to decline in late trading. Over 300%.
At the end of the day, the price of light crude oil futures for May delivery on the New York Mercantile Exchange, due to expire on the 21st, rarely fell into negative territory. The price of light crude oil futures for June delivery on the New York Mercantile Exchange also plunged 18.37 percent to close at $20.43 a barrel.
By the close of the day, the price of light crude futures for May delivery on the New York Mercantile Exchange fell $55.90 to close at -$37.63 a barrel, or 305.97 percent, and the price of London Brent crude futures for June delivery fell $2.51 to close at $25.57 a barrel, or 8.94 percent.
The global imbalance in oil supply and demand is starting to really show through prices, said Rista Energy’s senior vice president and head of oil markets. As crude oil production continues to be relatively unaffected state, oil reserve facilities are increasingly being filled.
The price of light crude oil futures due to expire in May is being squeezed very heavily as premiums are concentrated in forward crude oil futures contracts and recent contracts are trading at a significant discount, said Stephen Innis, chief global markets strategist at Australian firm Axis.
Most market analysts believe that the Organization of the Petroleum Exporting Countries (OPEC) and a number of non-OPEC oil-producing countries recently reached an agreement to cut production will not help to ease the oversupply of crude oil in April, oil prices need to go further down to force more oil and gas companies to cut production or stop production, so that the market to restore supply and demand balance.
The supply and demand fundamentals of the international oil transportation market will continue to improve from 2019 onwards, and the tanker transportation industry will enter a new upward cycle”, and the analysis was carried out from three aspects. In terms of transport demand, COSCO Ocean Energy believes that despite OPEC’s renewed 6-month production cut, unlike the situation in 2018, the certainty of crude oil export growth in the Americas, such as the United States and Brazil, has increased significantly. Global oil consumption is still expected to grow by about 1.4 million barrels per day in 2019. The demand for tanker transportation will be strongly supported by longer distances due to changes in the structure of cargo sources and solid growth in oil consumption. In terms of new capacity, the first half of 2019 is still expected to usher in a wave of new ship deliveries, but due to the shipbuilding industry capacity clearance, steel, rising labor costs and environmental protection conventions on shipbuilding standards, new shipbuilding prices may enter an upward cycle, January 2019 VLCC new shipbuilding price of $93 million per ship, up about 14% from $81.5 million per ship in early 2018, will somewhat curb the growth of new ship orders. In terms of capacity dismantling, as of February 2019, the global share of crude oil vessels over 15 years old as a percentage of total capacity was at an all-time high of about 22%. In addition to an aging fleet, increasingly stringent environmental conventions will also support higher dismantling rates over the coming period. In addition, 2019 is the last year before the implementation of the IMO Sulphur Limitation Convention, and tankers that choose to install desulphurization equipment will be docked and converted during 2019, which will affect the supply of effective capacity in a phased manner.
Crude oil end consumption: 60% transport (2019 data)
The share of crude oil consumption related to passenger and freight transportation is high, at around 60% (2019 data). As the epidemic spreads globally, with 54 countries declaring a state of emergency by 2 April (these countries account for 42% of global GDP) and the number of international routes declining by 63% year-on-year from 23-29 March, the demand for crude oil consumption is likely to be significantly reduced, with a short-term impact of 20-30 million barrels per day, or 20-30% of global crude oil consumption demand, according to forecasts. From the current point of view, it is impossible to judge when the inflection point of the global epidemic will come, and even if there is a decline in the number of confirmed cases, it may still take some time before the closure policy is lifted, and even after the closure is lifted, the daily travel of residents will still be reduced, so the fall in oil prices and the accumulation of stocks due to the crude oil surplus will be inevitable in the coming period, and in terms of the forward rate of increase, the current round has already exceeded the 2008 – 2009 and 2014 – 2015. Even if a new production cut is agreed in the coming period, if the cut is not large enough to offset the decline in demand, there will still be inventory accumulation and oil prices are likely to maintain a forward rally structure (the last round of rallies lasted from 4Q 2014 to early 2017 for about 2 and half years).
In the short term, for resource-dependent oil-producing countries, the important thing is the fiscal revenue from the sale of crude oil, when the reduction in production cannot achieve the effect of stabilizing or raising prices (for example, when there is a global epidemic, crude oil consumption demand plummeted, even a small reduction in oil prices will inevitably fall significantly), then the choice of oil-producing countries is to increase production to obtain more revenue (higher volume to compensate for lower prices) instead of reducing production (volume and price decline, revenue plummeted), and this is, in fact, the case after the failure of OPEC+ meeting negotiations on March 6.
Crude oil consumption will fall significantly as a result of the global epidemic: according to traders’ forecasts
The OPEC Secretary General’s proposal to hold an emergency OPEC+ meeting (originally the next OPEC meeting would have been held on June 9, 2020) would have invited other oil-producing countries in addition to OPEC countries and Russia, and judging by the latest news, the current time could be postponed to Thursday (April 9) from Monday (April 6), as originally proposed. It is impossible to judge the outcome of the meeting accurately, but in order to reach a real binding agreement on a huge production cut, it is necessary to go through a lot of interest game (including other oil-producing countries other than OPEC+, such as Canada, Brazil, Norway, etc.), especially the allocation of the production cut amount, the probability of reaching a consensus in the short term is not high.
On the other hand, regardless of the outcome of the OPEC negotiations, just because of the news of the negotiations, the oil price may continue to rebound, thus making the rise in water narrowed, which will also be transmitted to the oil transportation market: shippers and renters sentiment may change, the price will be a certain degree of correction. If the outcome of the final meeting is not agreed soon and the impact of the epidemic on demand continues or even worsens, and the surplus in the crude oil market is re-priced, it could lead to continued downward pressure on oil prices, with forward rallies or renewed rallies, thus pushing freight prices back up again. In the short term, therefore, freight rates may be oscillating at relatively high levels, but the share price does not reflect an increase in the freight average.
Due to the past few years shipping market as a whole is in a long-term downturn, the stock market research and attention is low, so there are still a lot of differences and worries about the views of the oil transportation sector, which mainly include:
1) the short-term fluctuations in freight prices, it is difficult to grasp and judge
2) a large number of influencing factors, involving the global major economies and political and economic factors
3) the continuity of freight prices are worried
4) the phenomenon of rapid rise and fall in stock prices, for the timing of the high requirements