Statsguru: Why crude oil went berserk last week and is it just a blip?

Oil traded at a negative price on a one-month West Texas Intermediate futures contract, but it didn't for successive months' futures contracts.

Last week, the quantity of oil in the global supply pipeline was so high that some traders were willing to pay anyone who promised on April 20 to lift oil a month later. Oil traded at a negative price on a one-month West Texas Intermediate (WTI) futures contract, but it didn’t for successive months’ futures contracts

But the blip nevertheless confirmed the oil shock that will play out in the near future due to lower demand post-Covid-19 menace. The world is known to oil shocks, and India bought oil at $16 on April 21, the lowest in almost five decades, due to depressed benchmark prices.

The magnitude of excess supply is visible in two key indicators. Developed countries have about 80 days of oil stocked with them, up 33 per cent from the normal of two months. Second, a whopping 100 million barrels of oil was present in the sea and ports (in-transit) at the end of March 2020, 50 per cent more than what it was six months ago, and possibly the highest ever.

shows the reason: Global body International Energy Agency has predicted that oil demand will fall by a staggering 25 per cent from 100 mb/day to 76 mb/day by April-June 2020.

The demand situation in India was visible in March data. The consumption of airline fuel, diesel, and petrol plummeted, and will be followed by a stronger plunge in April because of the lockdown. Though low oil prices generally give a revenue windfall to the Union government, the falling consumption is likely to dent fuel tax revenues for both the Centre and states

Crude oil prices fall as coronavirus death toll climbs, US inventories grow

WHO's Emergency Committee is set for another meeting later on Thursday to reconsider whether the rapid spread of the virus should now be called a global emergency.

Market News : Oil prices fell on Thursday as the death toll from the new virus in China climbed to 170 and more airlines cancelled flights to the country's major cities, while rising US crude inventories added to the negative tone.

Brent was down 35 cents, or 0.6 per cent, at $59.46 a barrel by 7:55 am, having risen 0.5 per cent on Wednesday. US crude was down 30 cents, or 0.6 per cent, at $53.03 a barrel, after dropping 0.3 per cent in the previous session.

Still, oil prices have steadied in recent days after a rout that pushed them to three-month lows and the market is trying to assess the damage to economic growth and demand for crude and its products.

"There isn't a compelling case crude needs to go lower until we know more about how bad the demand destruction from the coronavirus epidemic is going to be," said Stratfor oil analyst, Greg Priddy.

A second flight of Japanese evacuees from Wuhan, China, where the outbreak started, landed in Japan on Thursday, with nine showing symptoms of fever or coughing, broadcaster NHK reported. Infections in China have passed 7,700.

The World Health Organisation's Emergency Committee is set for another meeting later on Thursday to reconsider whether the rapid spread of the virus should now be called a global emergency.

Airlines around the world are suspending or reducing direct flights to major cities in China as travel warnings are issued by governments and passenger numbers drop.

Bigger-than-expected gains in US crude oil inventories last week also meant "oil prices were dealt the cruellest hand of them all," said Stephen Innes, chief market strategist at AxiCorp.

Crude stocks rose by more than seven times market expectations, gaining 3.5 million barrels in the week to Jan. 24, the US Energy Information Administration (EIA) said on Wednesday.

Gasoline stocks rose to a record high, increasing for a 12th consecutive week to 261.1 million barrels, the EIA said.