On 20 April, US oil futures closed in negative territory for the first time, implying that no one was willing to take physical delivery of some barrels of oil. While the unprecedented price moves were exacerbated by technical market operations, including an excessively large exchange traded fund (ETF) and already clogged pipelines in the United States, the real driver is lack of demand due to Covid-19 quarantines and uncertainty about how these trends will change. Longer dated futures still price in a recovery in oil prices later in the year (though less optimistically than global equity markets), but it could be a very painful adjustment to get there.
In a regional context, this raises important questions about how Asian countries might respond to and be affected by this painful adjustment – and why they may be waiting for any major energy investments.
Read the full article in The Interpreter by the Lowy Institute.
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