For the first time in history, the price of West Texas Intermediate crude oil (WTI) dropped into negative territory earlier in the week – which technically means that traders owning stock would have paid someone to take it off their hands. The price of Brent crude oil also hit a record low. The reason for this is that Covid-19 lockdowns around the world have caused a sudden and extreme drop in demand for fuel. Many planes aren’t flying, ships aren’t sailing, trains and motor vehicles are idle, and factories have stopped manufacturing. The excess oil is piling up in fuel tanks and on rented oil tankers, and storage space is expected to run out next month.
The price of oil has crept up a little since then, but it is expected to remain relatively low for the foreseeable future, or at least until we start to see signs of a recovery from the global economic damage caused by the pandemic. The collapse in demand followed a pricing feud between Saudi Arabia and Russia earlier in the year, which resulted in an already oversupplied oil market. Since then, OPEC members and other oil-producing nations have agreed to cut global output in May by about 10% for the time being – although this may be too little too late and there might be additional earlier cuts made in order to stabilise the market.
The price of a barrel of Brent crude oil does drive the direction of the marine gas oil market, although the correlation is a loose one and there are a number of additional factors that influence our pricing levels on a day-to-day basis. The price of fuel reflects not just the fluctuating replacement cost of oil, but also the complex costs of production and supply – the refining process, demand for other products made by the refineries, availability of transportation, insurance, the availability of storage, and so on. All of these factors are currently being influenced by the Covid-19 crisis.
We operate in a dynamic and volatile market and these are difficult times for almost everybody. We remain open and available to supply our customers with fuel seven days a week. Our supply of product is secured through our UK refinery base – and the availability of the right products in the right place at the right time remains good. Planning and communication remain critical, and we are working hard to ensure that safety guidelines are followed and that colleagues throughout our supply chain stay safe – on our ship, at our terminals and during deliveries.