Yesterday U.S. oil prices crashed. WTI oil futures closed at a staggering negative $40.32 per barrel. What does that mean?
Oil storage is full.
What about international oil prices? They remain unchanged. Brent crude oil closed around $25.41 per barrel. There is a tremendous difference between U.S. oil prices and international oil. Normally, this is an arbitrage opportunity. With COVID disrupting shipping, the U.S. is unable to export oil and close the price gap.
On first blush, agriculture stands to win. Cheaper fuel abounds. However, oil producers able to slow or stop production will do so. When wells stop producing oil, the wells also stop producing natural gas. Natural gas futures prices increased.
On any given day oil prices, natural gas prices and urea fertilizer prices are closely tied as one 'energy market'. This is not any given day. Weak demand and oil producers unable to turn a well off for fear of the well never starting again have disconnected the U.S. from the world.
OPEC agreed to cut production by 6 million barrels a day, the largest reduction ever. The global glut weighs in at a staggering 30 million barrel per day. OPEC's production cuts are not having any effect. Fewer oil rigs in the U.S. will solve this problem in the short run. Oil rig counts are down 35% since March but like the OPEC production cuts it is not enough.