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The Economist April 25th 2020 Finance & economics 67
Commodities Energy Information Administration re-
Peaks and troughs ported that crude inventories had reached
Tick tock Crude oil 519m barrels, close to the record of 535m set
in 2017. Brent crude is seaborne and there-
fore less vulnerable to transport and stor-
West Texas In storage
age problems than landlocked wti. But it
Intermediate, futures Barrels, m
price, $ per barrel too faces constraints. The volume of oil
NEW YORK 80 150 stored on ships has jumped by 70% since
As storage tanks fill up, oil markets the beginning of March, according to Kpler,
have a timing problem 60 Floating at sea
June 40 Worldwide 100 a market-data firm. And even more oil is
or more than a century, oil has been contract borne on ships still steaming towards on-
20
Famong the world’s most vital commod- shore crude tanks, which Reid I’Anson of
Cushing capacity
ities. On April 20th it became less than 0 50 Kpler estimates are already about 85% full.
worthless. The price of the May futures -20 Unprecedented circumstances are
May contract Cushing
contract for West Texas Intermediate (wti) bringing unprecedented behaviour. Oil is
-40 Oklahoma 0
crude plunged to the hitherto unfathom- usually stored in giant ships such as a Suez-
Jan Feb Mar Apr Jan Feb Mar Apr
able level of -$40. The price of Brent crude, max, or the aptly named Very Large Crude
the international benchmark, sank too, be- 2020 2020 Carrier, or onshore near big ports or popu-
Sources: Datastream from Refinitiv; Kpler; EIA; Morgan Stanley
fore both seemed to recover, with the lation centres, such as Rotterdam or New
front-month contracts settling at $13.78 for York. Ben Luckock of Trafigura, a big trader,
wti and $20.37 for Brent on April 22nd. But crude to be delivered to Cushing, Oklaho- says firms such as his are now considering
oil markets still have a timing problem. ma, in May, but that Cushing would proba- rail cars, small barges or even parked
As governments try to contain the bly have no available tanks to store it. trucks. The price of a contract for a major
spread of covid-19, demand for oil has fall- The pressure on the global market is crude benchmark may not sink again to
en faster and farther than at any point in less extreme, but not entirely dissimilar. -$40. But as inventories rise, oil markets
history. Production has been slower to ebb, On April 12th opec and its allies promised continue to test the realm of possibility. 7
so storage tanks are filling up. The Organi- to restrain output by 9.7m barrels a day in
sation of the Petroleum Exporting Coun- May and June, their biggest ever cut. The
tries (opec) and its allies this month ann- accord was too late, though, to deal with Financial technology
ounced a historic deal to cut production. the implosion of demand in April. The In-
On April 20th America’s president, Donald ternational Energy Agency expects oil de- Virtually money
Trump, said his government might buy as mand to sink by 29m barrels a day this
much as 75m barrels of crude for America’s month, compared with April 2019, equiva-
strategic reserve. But output is unlikely to lent to a third of global supply.
drop quickly enough to bring oil markets The agreement may be insufficient to
SHANGHAI
into balance in May, June or even later this deal with continued declines in demand in
China aims to launch the world’s first
summer. As crude inventories rise, so does May, too, not least because the actual cuts official digital currency
the pressure on the market. are less impressive than the headline sugg-
The May contract for wti, though idio- ests. Not all of the more than 20 parties to entral banks have had a busy pan-
syncratic in some ways, exemplifies the di- the deal may comply. Moreover, Saudi Ara- Cdemic. Along with injecting vast
saster scenario. The contract’s last day of bia, Russia and others in the group agreed amounts of money into the financial sys-
trading was April 21st. The price plunged on to cut output not from the levels of Febru- tem, they have cleaned vast amounts of it—
April 20th, as traders realised they owned ary, but from an even higher base. The coll- literally. From America to South Korea,
ective cut, compared with February of this central banks have quarantined and disin-
year, is therefore closer to 7.5m barrels a fected potentially contaminated bank-
day, reckons Bernstein, a research firm. notes. This hassle should make them all
It is unclear if or when deeper cuts will the more interested in a digital-currency
come. Mr Trump helped broker the opec pilot now under way in China. If success-
deal—America is now the world’s biggest ful, it could change how central banks
crude producer—and is weighing further manage both liquidity and physical cash.
measures to support prices. But any pur- Dozens of central banks have started
chase for America’s strategic reserves looking at whether to issue digital curren-
would require the approval of Congress. cies. But only a few have run trials and
Regulators in Texas are mulling a cap on none has gone as far as China, which app-
that state’s production, but a meeting on ears set to become the first country to put a
April 21st ended without agreement. central-bank digital currency (cbdc) into
Market-driven declines in production limited use. China’s four largest commer-
are more likely, particularly after the night- cial banks began internal tests this month.
mare of the May wti contract. But so far The city of Suzhou will give some to gov-
companies’ declared cuts have been too te- ernment employees next month to cover
pid: they are often loth to stop production, transportation costs, according to state
as restarting a well can be costly. Bernstein media. Citic Securities, a brokerage, fore-
therefore expects global supply to exceed cast on April 16th that China would form-
demand in the second quarter by more ally launch the digital yuan later this year.
than 13m barrels a day. China began exploring the concept in
In the meantime, storage across Ameri- 2014 because of the technological upheaval
ca is filling up rapidly, and could reach tank in its financial system. A decade ago it was
From boomtime to bloomtime tops in June. On April 22nd the country’s cash-dominated; last year mobile transac- 1
