US oil price faces 2nd decrease below zero
The US benchmark oil price could fall below zero for a second time this year, signalling that global oil stocks are nearing full capacity, says one expert.
Manoon Siriwan, an independent energy expert, said a second drop below zero for West Texas Intermediate (WTI) crude may occur soon because oil storage capacity in the US is over 90%.
He said crude oil production cannot just shut down overnight and will continue to add to oversupply in the market.
On Monday the WTI price closed at US$12.78 per barrel, down 24.6%, as several investment funds bought out futures for June delivery.
"Shutting down crude oil production is very complicated because the oil production platforms require huge capital expenditure, machinery and equipment," Mr Manoon said.
He said the liquidity of oil futures traders across the world is drying up and traders are filing for debt rehabilitation.
Singapore's Hin Leong Trading Pte Ltd, one of Asia's top oil traders, has been placed under the management of a court-appointed supervisor as it seeks to restructure billions of dollars worth of debt, according to a report from Edge Markets.
Mr Manoon said Hin Leong made a costly and wrong speculation, betting that Covid-19 would not spread outside China and the Chinese government would control and fully eradicate the virus. That did not happen.
He said that with WTI at $12.78 per barrel it could convert to a local ex-refined oil price of 6-7 baht per litre, excluding VAT, to levy collection into the Office of Fuel Fund Oil and excise tax.
Energy Minister Sontirat Sontijirawong said he is closely monitoring the situation. After seeing jet fuel prices drop 90%, he decided that oil traders and refineries should reduce oil stock from 22 days' worth of consumption to the equivalent of 14 days.
The oil supply may be changed to tap into the fast-changing price of oil, and the easing of the lockdown may make demand for oil increase, but not for jet fuel, he said.
Meanwhile, national energy conglomerate PTT Plc announced yesterday that it was denied money from a bond stabilisation fund.
The 400-billion-baht corporate bond fund was set up by the Bank of Thailand to be an instrument to stabilise the corporate bond market amid concerns of possible interference from economic experts.
The Corporate Bond Stabilisation Fund (BSF) is meant to enhance liquidity and stabilise the financial market, where the corporate bond sector is estimated to be valued at 3.6 trillion baht, or more than 20% of GDP.
Chansin Treenuchagron, president and chief executive of PTT, said the group's wholly owned PTT International Trading Co in Singapore traded petrol with Hin Leong through the Platts benchmark market under letters of credit, but they did not default and the unit no longer has any trade with Hin Leong.
He said PTT's financial capability has remained strong and this year its debt repayment is worth 27.12 billion baht.
PTT's business no longer heavily depends on oil trading because a decade ago it diversified into many sectors, including petrochemicals, renewable energy, gas, infrastructure, power generation and bio-based businesses.
The group re-estimated that the average Dubai benchmark crude oil prices this year would range between $20-30 per barrel, down from an earlier estimation in December last year of $55-60 per barrel.