Morning Brief

Oil Price Plummets Into Negative Territory

U.S. oil futures collapse after traders scramble to sell May contracts before expiry.

A woman walks past an idle oil pumpjack on April 20, 2020 in Signal Hill, California.
A woman walks past an idle oil pumpjack on April 20, 2020 in Signal Hill, California. Mario Tama/Getty Images

Here is today’s Foreign Policy brief: U.S. oil benchmark price tanks, Benjamin Netanyahu and Benny Gantz agree to a unity government in Israel, Trump seeks to halt all immigration to U.S., and North Korean leader Kim Jong Un reportedly in fragile condition after heart surgery.

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Oil Goes Negative as Investors Race to Offload Contracts

On Monday afternoon, a gallon of milk and a barrel of oil could be bought for the same price. It got worse from there.

A combination of poor timing, nonexistent demand, lack of storage capacity, and speculative investors caused WTI Crude Oil futures, the U.S. oil benchmark, to go into free fall on Monday, eventually settling at a negative price of -$37.63 a barrel—meaning that producers would have to pay people to take the oil off their hands. (The price of WTI crude for May delivery recovered to just over $0 per barrel by Tuesday morning.)

The crash came as traders rushed to ditch their investment before the financial world met the real world: The expiration date for the May futures contract is today, meaning any holder of those contracts would need to physically accept 1,000 barrels of oil at Cushing, Oklahoma. The storage facility at Cushing is already close to capacity due to weeks of low oil demand—making the contract effectively worthless. For traders accustomed to buying and selling oil only on paper, the prospect of taking physical delivery was a nonstarter—and other potential recipients of oil deliveries such as refineries or airlines aren’t keen to take it—prompting traders to offload the contract.

As Julianne Geiger at explains, the United States Oil Fund—an exchange-traded fund (ETF)—held a large share of the May contracts. “Of course, an ETF like the USO who deals in paper barrels is not eager to take physical delivery of any amount of oil—even if they could find somewhere to store it,” she writes. “The result? They must dump their oil, and they must do it now, no matter what the price.”

What does this mean for the U.S. oil industry? Monday’s plunge doesn’t mean oil is done for—as the June delivery contract is still trading at just over $20 per barrel, having dropped from $25 a barrel on Friday. Roger Diwan, a vice president at energy research firm IHS Markit, warned that the recent drop in the June price is still worrying, “A decline of over 15 percent in the June contract price points to real worries that the physical stress will continue to reverberate, and will force a lot more production shutdowns during May than the ones announced so far,” he wrote on Twitter.

As Monday’s collapse shows, the market for physical oil is fading fast, and U.S. President Donald Trump is attempting to stanch the bleeding. At yesterday’s White House briefing Trump said the United States would buy up to 75 million barrels of oil for its Strategic Petroleum Reserve. “This is a great time to buy oil and we’d like to have Congress approve it,” Trump said. He also said he would consider charging for others to store oil in the reserve, “People need storage desperately, and we have massive storage.”

How have other nations reacted to Monday’s crash? The dramatic drop has spooked other oil-producing nations. The Wall Street Journal reports that Saudi Arabia and other OPEC nations are considering cutting oil production as soon as possible, rather than wait until the beginning of May per the terms of the agreement struck on April 12 between OPEC, Russia, and the United States. “Something has to be done about this bloodbath,” a Saudi official told the Journal. “But it might be a little bit too late.”

What We’re Following Today

Gantz and Netanyahu agree to unity government. Israeli Prime Minister Benjamin Netanyahu and his rival Benny Gantz have officially agreed to form an emergency unity government, bringing a degree of closure to a tumultuous year in Israeli politics that saw three elections. The agreement will see cabinet positions shared between Netanyahu’s Likud party and Gantz’s Blue and White party, and the two leaders rotating as prime minister. Crucially, Netanyahu will be prime minister for the first 18 months of the three-year deal, meaning he will be head of government during his impending corruption trial. It also means Netanyahu can veto any new attorney general or state prosecutor, further solidifying his political position.

According to Haaretz, the deal gives Netanyahu the ability to move forward with his campaign promise to annex large parts of the West Bank by July 1, provided the plan receives Trump administration approval.

Gantz was stoic upon announcement of the deal, writing on Twitter, “We prevented a fourth election. We will protect democracy. We will battle corona and we will worry about all the citizens of Israel.” Gantz has paid the political price for this alliance, however, losing half of his parliamentary supporters and fracturing the nascent Blue and White party. Such is the volatile nature of recent Israeli politics, it’s not even a given that Gantz will be prime minister in 18 months.

Writing in FP on April 7, Dennis Ross and David Makovsky lauded Gantz for making the hard choice to pursue a unity government, even if it amounted to political suicide, “He was driven by his belief that the country, not politics, must take precedence in a time of emergency,” they wrote. “And he knew that in making this decision, he would split his party and perhaps cost himself any real political future.”

Trump threatens to halt all immigration. Trump signaled on Monday night that he intends to ban all those trying to move to the United States to live and work, ostensibly to protect U.S. workers from foreign competition. “In light of the attack from the Invisible Enemy, as well as the need to protect the jobs of our GREAT American Citizens,” he wrote on Twitter, “I will be signing an Executive Order to temporarily suspend immigration into the United States!”

According to the New York Times, “the president’s late-night announcement on Monday signals his most wide-ranging attempt yet to seal the country off from the rest of the world … effectively shutting down the legal immigration system in the same way the president has long advocated closing the borders to illegal immigration.”

Turkey says it will delay S-400 deployment. A senior Turkish official, speaking anonymously, said that Turkey will delay deploying the Russian S-400 air defense system in its airspace this month as it prioritizes dealing with its burgeoning coronavirus crisis. Turkey’s decision to purchase the system led to its expulsion from the U.S. F-35 fighter jet program in July of last year. By delaying the system’s deployment, Ankara also fends off the prospect of additional sanctions threatened by the United States.

“We continue to stress at the highest levels that the S-400 transaction is the subject of ongoing CAATSA sanctions deliberations and it remains a major obstacle in the bilateral relationship and at NATO,” State Department spokesperson Morgan Ortagus said, using an acronym referring to a U.S. law that punishes countries that buy Russian weapons. “We are confident that President Erdogan and his senior officials understand our position,” she said.

Italy’s drop in new coronavirus cases. New daily coronavirus cases in Italy fell to their lowest levels in over a month, according to official figures: 2,256 new cases were registered on Monday, the lowest since March 10. The country’s death toll increased slightly on the previous day, however, suggesting Italy is not yet clear of the worst of its epidemic. In a positive development, Italy’s health observatory has forecast that two of Italy’s 20 regions, Umbria and Basilicata, would be registering no new cases by the end of April. The same forecast predicted that Lombardy, Italy’s worst hit region, would see new cases drop to zero toward the end of June.

Keep an Eye On

Where is North Korean leader Kim Jong Un? The United States has been closely monitoring reports on the North Korean leader’s health after he missed the celebration of his grandfather’s birthday on April 15, which led to speculation about his condition. (He had been seen four days before that.) Daily NK, an online newspaper based in South Korea and run largely by North Korean defectors, reported that Kim had undergone a cardiovascular procedure on April 12 due to “excessive smoking, obesity, and overwork,” according to the news site. The website NK News has produced an analysis of the succession process if Kim is incapacitated or dies.

Although U.S. intelligence is reportedly monitoring Kim’s “grave condition,” the South Korean government announced that “We have no information to confirm regarding rumors about Chairman Kim Jong Un’s health issue that have been reported by some media outlets. Also, no unusual developments have been detected inside North Korea.”

WHO warns of low antibody levels. The World Health Organization warned that as few as 2 percent of people worldwide have developed antibodies to combat COVID-19, dampening hopes that “herd immunity” may already be a possibility as nations approach a third month of stay-at-home measures. Maria Van Kerkhove, the WHO’s technical lead on the coronavirus pandemic, warned that antibodies were not enough to prove a person’s immunity and that the organization is tracking a number of studies looking at antibody levels in coronavirus hotspots.

Iran begins return to public life. Shopping malls reopened and intercity travel resumed in Iran on Monday as the country began to relax public coronavirus restrictions. Restaurants and mosques remain closed until further notice as the country tries to balance public health with the need to invigorate an already sanctions-ravaged economy. Ali Reza Zali, the head of the government coronavirus task force in Tehran, warned that the increased activity could lead to more cases, “The most important point is that more commuting, especially through public transportation, adds to the possibility of the spread of the virus,” he told state media. According to official figures, Iran has 83,505 cases of the coronavirus and has recorded 5,209 deaths. Like many nations, it is suspected that these figures may represent a significant undercount.

Odds and Ends

It’s an old business cliché that hairdressers are one of the few recession-proof businesses. If Denmark’s barbershops are anything to go by, the future of the trade seems bright, as the country relaxed restrictions on small businesses on Monday. Phil Olander, a barber in Copenhagen told the BBC his business is fully booked for the next two weeks, and that his online booking system crashed under the weight of demand. “We are crazy busy,” Olander said. The businesses have to operate under new hygiene standards designed to stem any further spread of the coronavirus and boost confidence for consumers. “We have to do a clean up between every client,” Olander said. “So that’s sanitizing each station, the tools, everything from the doorknob to the credit card reader. So it’s a lot of extra work.”

That’s it for today.

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Colm Quinn is the newsletter writer at Foreign Policy. Twitter: @colmfquinn

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