THREAD
1/n

#CrudeOil is trending and there are lot of misconceptions regarding it's fall today especially the WTI price becoming -ve

Not all crude oil is same. There are 1000s of varieties based on specifications called Crude Assay.

Important ones Brent, WTI, Arab Light.
2/n

So the fall has happened in WTI which is benchmark for American Crude Oil.

Brent continues to trade at USD 25/ bbl

Also,not all contracts of WTI are trading negative. The negative price is only for near month contract which expires tomorrow.
3/n

So the question arises, Why is the near term contract trading in negative zone?

Answer is Cushing which is a place in US where Crude us stored.

Cushing at the moment is full of Oil and it's running out of space to store the barrels.
4/n

So why is the storage capacity running out of space?

The #COVIDー19 event has created unprecedented demand shock across the globe.

Weekly US data suggests that Crude Oil Demand has fallen 35-40% in last one month.
5/n

Similarly, Indian Crude Consumption has dropped by 35% SAAR as suggested by data released by PPAC for Mar-20.

Globally the lockdown has resulted is similar fall in demand as transportation of Goods and People has literally come to a grinding halt.
6/n

What about supply?
Total global supply is ~100 million barrels/day

OPEC, an association of Oil producing countries, normally cuts production when Oil price slips below a certain threshold which is governed by their fiscal situation

But this time things are different.
7/n

Saudi Arabia which is a major producer of Oil is struggling from last few years to control Oil Price.

OPEC has ganged up with Russia, another major double digit Oil producer, to control Oil price for last few years.

However, OPEC + Russia produce only 40% of global oil.
8/n

So this Oil price fall has not only worried Saudi and Russia but also US.

Trump is facing the re-election in Nov-2020 amidst #COVIDー19 crisis. Some important states where he normally wins are Oil producing states esp. Texas.

So he dialled MBS to cut production.
9/n

But the cut has come too late too little.

10, 15, 20 million barrel cut is not going to work. And hence there is oversupply of Crude.

The slowdown in economic activity is here to stay and consumption patterns are bound to change.
10/n

A slow revolution is already taking place in the background. #Tesla

2010s was decade of Solar, 2020s will be decade of Electric Vehicles.

Combustion engine faces a near death in OECD countries.

This will have tremendous implications on Geopolitics in Middle East.
11/n

Difficult times ahead for Dictatorial regimes and those who have taken the help of theocracy to keep the anger of people suppressed.

This is an end of era for Crude Oil.

#COVIDー19 was just a trigger for fault lines which were getting developed in Oil market for long.
12/n

It's only matter of time when some of these oil producing nations seek bailouts from IMF.

The lower oil prices will prove to be a boon to struggling Indian Economy. Even if oil prices settle at USD 30/bbl, India will get benefit of ~USD 60 billion. That's 2% extra growth.
13/n

India is expected to turn into a Current Account Surplus country after a gap of 17 years.

No wonder our currency is not depreciating as is the case with other countries.

Most EM currencies have weakened by 20-25% while INR has depreciated only 7% post Covid
. #OOTT
14/n

So let's not get overly excited by negative Oil pric because that's a short term phenomenon led by Oversupply in US and Cushing not able to store those barrels.

Nor should we become complacent that lower oil price will bring automatic growth.
15/15

I am taking a pretty balanced view here that seriously lower Oil price not sustainable as was the case with seriously higher price.

Global economy is resetting and we need to accept that

The new normal is USD 30/bbl instead of USD 60/bbl.

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