The great oil price CRASH
THE oil price in London crashed to a 21-year low just hours after US crude tumbled into negative territory for the first time ever.
Brent crude, which is extracted from the North Sea and serves as an international benchmark, fell as low as $18.10 a barrel on another day of wild gyrations.
That was the lowest level since July 1999, and followed an unprecedented slump in the price of the US benchmark hours earlier.
So-called West Texas Intermediate (WTI) hit a low of minus-$40.32 a barrel on Monday, having never before fallen below zero.
This is because storage facilities in the US are almost full, including at the main hub in Oklahoma, forcing sellers who have nowhere to put the oil to pay buyers to take it off their hands. Earlier this year, Brent and WTI were close to $70 a barrel.
The slump sent shares in major oil companies into reverse, with BP down 3pc and Royal Dutch Shell off 4.2pc on the FTSE 100 index in London.
Fears are mounting that the two firms may be forced to cut their dividends to save cash if the oil price rout continues. The BP and Shell payouts are a crucial source of income for many savers, investors and pension funds in the UK.
Oil has been hit by a collapse in demand caused by the Covid-19 outbreak at a time of ample supply, leaving the world unable to store it.
Lockdowns around the world have closed factories, shops and offices, grounded aircraft, and taken many vehicles off the roads.
Former BP chief executive Lord Browne of Madingley warned demand for oil may have peaked and prices could remain low for years. ‘Demand is down, production is still high and, as a result, the prices will be very low and I think they will remain low and very volatile for some considerable time,’ he told the BBC Radio 4 Today programme.
Randeep Somel, equities investment director at M&G, said: ‘Never in the history of the oil market has demand come to a halt as we are seeing. There are only so many storage facilities.
‘As these continue to fill up, the oil must be shipped further afield, and the buyers want compensation for that.’
The oil production cartel Opec, which includes Saudi Arabia, Iran and Iraq, has pledged along with Russia to cut production by 10pc in a bid to prop up prices.
But those cuts have not yet come in, and analysts warn that they will have little impact because demand for oil has dropped by 30pc.
‘The recently agreed supply cuts do little to solve the nearterm oversupply problem,’ said analysts at independent research group JBC Energy.
In Russia, Kremlin spokesman Dmitry Peskov said on Tuesday that leading oil producers could hold talks again if needed.
US President Donald Trump said it would take advantage of the historic drop to replenish the national stockpile, the Strategic Petroleum Reserve, which can store 727m barrels, if Congress approved. This is intended for use in case of emergencies such as the 1991 Iraq War, or in 2005 after Hurricane Katrina.
Chris Beauchamp, analyst at trading firm IG, described the situation as a ‘complete dislocation in the crude oil market’.