For the first time on record, US oil prices are in a negative due to the impact of nationwide lockdowns. But what does this really mean for the average business? Demand for oil has all but dried up on a global scale, as lockdowns force us all to stay inside. This has caused an unprecedented drop in oil prices. In fact, the price of US oil has fallen into negative territory.
This means that oil producers are actually paying buyers to take the commodity off their hands due to fears their storage capacities could run out in May. At present, oil firms are renting tankers to store their surplus supply.
The benchmark for US oil, West Texas Intermediate (WTI), recently fell as low as -$37.63 a barrel. Meanwhile Brent Crude – the benchmark for oil prices used by Europe and the rest of the world – has also seen significant drops. Based on their June contracts, the benchmark is operating at $26 a barrel, a drop of 8.9%.
How are exporters tackling the drop in demand?
Earlier in April, exporters agreed to a record 10% slash in global oil output. This was the largest cut in oil production ever agreed, but analysts say it’s still not big enough to make a significant difference. The world still has more crude oil than it can use, and capacity is filling fast on both land and sea.
It’s this simple fact which has caused the current oil climate. Due to the societal impact of the coronavirus, exporters are actually being forced to pay importers, businesses and consumers to take oil off their hands.
This is a dramatic shift brought about by these uncertain times, but there are ways for businesses to take advantage of it. Low oil prices may put a smile on your face at the petrol pump, but they can also impact energy prices more broadly. Now might be the best time for businesses to buy for the long term.
How can businesses take advantage of the oil price crash?
Such a significant drop in the price of crude oil will have a knock-on effect on the price of both business and domestic energy over the coming weeks and months. In February, a drop in wholesale prices had already resulted in a lowering of the price cap and it is now likely that suppliers will move to offer even more competitive rates in line with plummeting wholesale rates.
This means that for businesses looking to renew their energy contracts, now could be an opportunity to make a substantial saving and negotiate a new contract – particularly those that would otherwise be rolling on to a standard variable tariff over the coming months.
With the gap between the price cap and the cheapest fixed price tariff widening all the time, now is a crucial time for businesses of all sizes to pay attention to their energy contracts. By reducing monthly overheads, businesses can afford themselves some much-needed relief at a time when cashflow across many industries is proving to be a challenge.
Need advice on how your business should act on energy during these uncertain times? Speak to the team at The Energy Check today. Simply click here to get in touch.