Pablo Soria de Lachica Explains the Recent Unprecedented Drop of Oil Prices into Negative Territory

MEXICO CITY, MEXICO – Among commodities, none can rival oil in terms of its importance for the global economy. Despite the accelerating push towards renewables, “the black gold” has been the world’s most vital energy source since the 1950s and is expected to remain such for decades to come. Its price indicating the state of the global economy and setting the course for future business activity and investments. “Oil prices tend to fluctuate based on demand and supply, but what happened last month was unprecedented even in an industry accustomed to dealing with shocks and uncertainty,” comments veteran forex broker Pablo Soria de Lachica. “As May futures contracts headed towards expiry, a supply glut and the lack of storage space pushed the US benchmark, West Texas Intermediate (WTI), into sub-zero territory for the first time in the history of this industry. The slump to minus $40 per barrel on April 20 resulted from a combination of severely depressed demand due to the global pandemic and the failure of oil producers to act quickly to reduce output.”

The global economy has slid into a recession after governments around the world issued stay-at-home orders to contain the public health crisis. The International Energy Agency (IEA) painted a vivid picture of the situation in the April 2020 edition of its Oil Market Report as it projected a drop in global demand by 9.3 million barrels a day from 2019 levels, which would reverse nearly a decade of growth. “Around the world, billions of people are affected by one of the worst health crises of the past century. The global economy is under pressure in ways not seen since the Great Depression in the 1930s; businesses are failing, and unemployment is surging. Confinement measures are in place in 187 countries and territories, and although they vary in scope, activity in the transportation sector has fallen dramatically almost everywhere.” Pablo Soria de Lachica forecasts that although some countries are easing their restrictions on travel and allowing sectors of their economies to re-open, the world may be facing a prolonged recession, which would keep oil demand and prices depressed.

Another reason for the April crash in WTI futures was the discord among the world’s top oil-producing nations, most notably the week-long price war in March between Saudi Arabia and Russia. The devastating market impact of this conflict ultimately forced OPEC members and their allies to reach an agreement in April, committing to a staggered reduction in output for two years. The deal includes a record cut of 9.7 million barrels per day in May and June, with the number declining gradually through to April 2022. While this was a desperately needed step, many believe it will not prove enough to ensure a strong recovery and stability in the oil market, Pablo Soria de Lachica notes. A report by Goldman Sachs analysts described the cuts as “too little and too late,” while Chris Midgley, global analytics head at S&P Global Platts, told CNBC that they “won’t be enough to bring sustainable, restorative support to oil prices, not unless OPEC goes further.”

Pablo Soria de Lachica graduated from Universidad Tecnologico de Mexico (UNITEC) with an MBA, going on to specialize in international trading and ultimately become one of the most prominent forex experts globally. His extensive experience allows him to maximize profits for his clients by combining professional guidance and educational projects. He is currently collaborating with Kartoshka – a company bringing the latest technologies in sales, telemarketing, and customer support.

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SOURCE: Pablo Soria de Lachica

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