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US oil prices crash in wake of pandemic

By Elahi Bakhsh

US oil prices crash. US oil prices have crashed recording staggering negative value as reports of oil companies going bankrupt have surfaced in the media.

This crash scenario is attributed to a number of factors and the reduction in demand of oil is one of them. Oil storage facilities worldwide can no longer accommodate further oil imports that’s why most countries have halted the demand for oil and others have even canceled the contract futures.

Contract futures, as I have come to know very recently, is a type of contract between an oil selling and an oil buying country for the trade of certain quantity of oil on certain dates in the future. This is now one factor which is widely responsible for the prices’ crash in the US.

Another reason that only US oil prices have severely dropped is that few weeks earlier Saudi companies dropped their oil prices below what of the Oil Producing and Exporting Countries (OPEC) had an agreement on. Saudis had done so to counter Russian oil export because Russia was exporting its oil in an unchecked quantity since it was not in the ambit of OPEC.

As it happened, the US oil prices crash has moved Saudis and Russians to reach an agreement to curtail their oil export and fix the selling price so that US oil prices may bounce back. My understanding of this gesture is as vague as of any other political science student.

Someone from the economics fraternity will solve this puzzle more properly. I think Saudis and Russians are doing this generosity as a courtesy so that the same may be done to them if they were where US is now.

Some of our friends are suggesting why Pakistan is not benefiting from the current US oil price reduction. Well, just any other country that is running out of space for further oil storage – that is why the current price crash happened in the first place – Pakistan is also short of storage facilities. For the space to open up for oil storage the already stored oil needs to be utilized.

But how could that happen if airways and most of automobile sector are closed down. Small quantity which is being utilized is getting covered for. But that is not exactly enough for our benefit. Others are saying that if this trend of dropped oil prices continues then we might end up getting oil for free.

This is also a myth as when a country imports oil the oil already gets a value for the reasons like transportation fees, tax amount etc. It feels sorry to conclude that we are not going to get free oil after all.

Also by same writer: This is us


(The writer is Lecturer at Govt Degree College Booni, Upper Chitral).

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