Jamaica’s central bank has been asked to work with a team at the Ministry of Finance to continue reviewing hedging options and costs after US oil prices crashed to unprecedented lows yesterday.
Finance Minister Dr Nigel Clarke made the announcement as futures in New York ended in negative territory for the first time amid a devastating supply glut that has forced traders to pay others to take the crude off their hands.
Explaining that the Bank of Jamaica is to advise the Government on next steps in a way that maximises returns on taxpayer dollars, Dr Clarke said yesterday’s dramatic fall in price where oil traded at US$1 per barrel before moving into negative territory as global storage capacity is exhausted, is another reminder of the profound uncertainty in the world at this time.
He said over the past few weeks, a small team from the Ministry of Finance has been working with bankers and multilateral partners on the possibility of hedging Jamaica’s future oil supplies.
“The team has been supplied with daily prices of hedging instruments which, needless to say, reflect the significant uncertainty. That is, they have not been cheap,” Dr Clarke said, adding that, had the team rushed the oil transactions based on prices a few weeks ago, Jamaica would have regretted it today.
Yesterday, Agence France Presse ( AFP) reported that US benchmark West Texas Intermediate for May delivery closed at -US$37.63 a barrel.
The futures contract for May closes today, meaning traders who buy and sell the commodity for profit need to find someone to take physical possession of the oil. But with the glut in markets and storage facilities full, buyers were scarce.
“It’s a contract for something that nobody wants to buy,” said Matt Smith of ClipperData.
Addressing reporters after the market closed, United States President Donald Trump reiterated his promise to fill up the Strategic Petroleum Reserve, saying the US would add as much as 75 million barrels of crude.
“That would be the first time in a long time that it has been topped out. We get it for the right price,” Trump said.
The cratering oil prices prompted more selling on Wall Street, which was slowly creeping back up after the coronavirus pandemic battered the major indices.
US stocks opened lower and stayed that way all day, with the Dow petering out to post a 2.4 per cent decline.
The chaos in the oil market comes as the petroleum industry emerges as one of the cornerstones of the global economy made most vulnerable by government shutdowns to limit the spread of coronavirus.
The commodity has been further weakened by a battle for market share that raged much of the spring between Saudi Arabia and Russia.
A deal announced last week between the Organisation of Petroleum Exporting Countries (OPEC) and independent producers to cut output by about 10 million barrels per day starting in May appears not to have been enough to buoy prices, while the closely monitored storage capacity at Cushing, Oklahoma, was almost full as of yesterday morning.
“It’s a dump at all cost as no one… wants delivery of oil, with Cushing storage facilities filling by the minute,” AxiCorp’s Stephen Innes said.
“It hasn’t taken long for the market to recognise that the OPEC+ deal will not, in its present form, be enough to balance oil markets.”
Still, Smith noted yesterday’s negative price only affects oil deliveries due today.
US oil futures for delivery in June also fell sharply, dropping 18 per cent, but finished at US$20.43 a barrel.
The European benchmark contract, London Brent North Sea oil for June delivery, ended down nine per cent at US$25.57 a barrel.
“This moment is, of course, historical and could not better illustrate the price utopia that the market has been in since March, when the full scale of the oversupply problem started to become evident,” said Rystad Energy’s Oil Markets Analyst Louise Dickson.
Meanwhile, most European stock markets ended the day higher as governments start to consider how and when to ease the lockdowns that have crippled the global economy.
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