At the time that COVID-19 affects world economies, US crude, the main reference for Mexico, is trading in negative numbers.
This Monday, April 20, US oil faces the worst day in its history, since for the first time it operates at a negative price; the sale of crude oil is below its cost of production, which means that oil companies can no longer store their oil due to oversupply, leading to paying other companies for its storage.
The world before COVID-19 consumed 100 million barrels a day, and after the pandemic, demand fell by 20%. Mass isolation, border closures and quarantine in most countries translate into hard hit prices. There are no cars on the streets, no air travel, no transportation of raw materials, and just as the International Energy Agency (IEA) predicted, this year will be the worst in history for raw materials.
Despite the supply cut announced by OPEC in recent days, this is not enough. “If energy consumption is down 30% and OPEC cuts supply by 10%, there is still a big gap,” says Elwin de Groot, Rabobank’s head of macro strategy.
In West Texas, the barrel lost all its value in just one day; Dow Jones NYK registers a decrease of more than 2% and after closing at 14.35 last Friday, the Mexican mix is trading at zero dollars this Monday. An announcement from PEMEX is expected today afternoon.
“Refineries are rejecting barrels at a historic rate and with US storage levels reaching their limits, market forces will inflict more pain until we hit the bottom or clears COVID-19, whichever comes first, but it appears to come first. «Says Michael Tran, Managing Director of Global Energy Strategy at RBC Capital Markets.
