For the first time in 18 years the price of a barrel of Brent Crude, which is the UK’s benchmark for oil, has fallen to below $20. It comes after the price of US oil hit a historic low of below zero earlier this week. It fell to minus $37 a barrel at one point before recovering to a positive figure.
Producers are having to pay buyers to take the oil because of fears that storage capacity could run out in May. Prices have recovered some ground today since the historic crash but any gains are likely to be capped because of the concerns over how the market will cope with the supply surplus. Global demand for oil has plummeted because of the lockdown caused by the Coronavirus pandemic, and the fallout between Russia and Saudi Arabia over reducing output.
The business lobby for the UK’s offshore oil and gas sector, OGUK, says firms operating in the North Sea will be affected by the negative price of US oil. It’s boss, Deirdre Michie, says “the dynamics of this US market are different from those directly driving UK produced Brent but we will not escape the impact.”
Energy prices in the UK have fallen in response to reduce demand because of the COVID-19 lockdown, but the effect of the US oil price collapse is expected to be limited because they have not experienced the dramatic changes. In the last few years gas and power prices have become less prone to following the same price fluctuation as oil. Previously they followed a similar sort of pattern but have since decoupled.
Analysts think the negative prices recorded for a barrel of West Texas Intermediate, which is the US benchmark for oil, is unusual but won’t become the new normal.