Let me explain something first.

Cushing, Oklahoma. You've probably never heard of it, but in that town of 8,000, there's a huge crude oil storage facility, and it's full to the brim.

This is because OPEC decided to ramp up its oil supply at a rather unfortunate time - right before coronavirus hit.

That glut of supply, as well as reduced demand due to COVID-19, has caused oil prices to crash, and since Cushing is a key storage facility, traders are having to offload their barrels of oil.

The oil futures price crashed Monday by 306% on the NYMEX - the New York Mercantile Exchange - a market where commodities such as crude oil, coal, and electricity are traded.

It's important to note that a barrel of oil is still priced in the positive territory  - it's the oil futures that fell drastically.

A future is essentially an agreement between two parties to sell/buy 1,000 barrels of oil at a certain date - it's a bet on the future price of oil, and it also means traders don't need to physically trade barrels, but if they lose on the contract, they have to store the barrels.

Cushing can store it for them, but the town's storage facility is full.

As Cushing is full, traders are betting that the oil price will crash further, which has sent the oil futures price to negative $37.63 (US Dollars), meaning sellers of oil futures are now having to pay buyers. 

Despite this bonkers time, however, the effects at the bowser may not be realised, but how?

In the market for a new car? The table below features car loans with some of the lowest fixed interest rates on the market.

Update resultsUpdate
LenderCar LoanInterest Rate Comparison Rate* Monthly Repayment Interest Type Vehicle Type Maximum Vehicle Age Ongoing Fee Upfront Fee Total Repayment Early Repayment Instant Approval Online Application TagsFeaturesLinkCompare
7.09% p.a.
8.21% p.a.
$595
Fixed
New
1 year
$8
$400
$35,719
Approval within 24 hoursEarly payout available
  • Required: Good credit history, stable employment history. Aus citizenship or PR.
6.09% p.a.
7.21% p.a.
$581
Fixed
New
1 year
$8
$400
$34,874
Featured Approval within 24 hours
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  • Required: Good credit history, stable employment history. Aus citizenship or PR.
6.57% p.a.
7.19% p.a.
$588
Fixed
New
No Max
$0
$250
$35,278
Featured Loan amounts from $2k to $75k
  • Available for any new motorised vehicle
  • No ongoing or early exit fees
  • 1-7 years loan terms. Pay monthly, fortnightly, or weekly
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7.24% p.a.
8.36% p.a.
$597
Variable
New
1 year
$8
$400
$35,846
7.29% p.a.
8.41% p.a.
$598
Fixed
New
1 year
$8
$400
$35,889
7.99% p.a.
8.27% p.a.
$608
Fixed
New, Used
No Max
$0
$195
$36,489
7.49% p.a.
7.99% p.a.
$601
Fixed
New, Used
7 years
$0
$249
$36,060
No ongoing fees
8.27% p.a.
8.27% p.a.
$612
Fixed
New, Used
No Max
$0
$595
$36,731
7.95% p.a.
8.16% p.a.
$608
Fixed
New
5 years
$0
$150
$36,454
8.99% p.a.
9.33% p.a.
$623
Fixed
New, Used
7 years
$5
$0
$37,356
9.24% p.a.
9.86% p.a.
$626
Variable
New, Used
10 years
$5
$195
$37,575
9.49% p.a.
10.82% p.a.
$630
Fixed
New, Used
No Max
$9
$474
$37,795
Important Information and Comparison Rate Warning

All products with a link to a product provider’s website have a commercial marketing relationship between us and these providers. These products may appear prominently and first within the search tables regardless of their attributes and may include products marked as promoted, featured or sponsored. The link to a product provider’s website will allow you to get more information or apply for the product. By de-selecting “Show online partners only” additional non-commercialised products may be displayed and re-sorted at the top of the table. For more information on how we’ve selected these “Sponsored”, “Featured” and “Promoted” products, the products we compare, how we make money, and other important information about our service, please click here.

The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless indicated otherwise. The comparison rates for car loans and secured personal loans for the relevant amounts and terms are for secured loans unless indicated otherwise. The comparison rates for unsecured personal loans are applicable for unsecured loans only. WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.

Monthly repayment figures are estimates only, exclude fees and are based on the advertised rate for the term and for the loan amount entered. Actual repayments will depend on your individual circumstances and interest rate changes. Rates correct as of . View disclaimer.

Will petrol prices keep falling?

Experts are predicting a further sharp drop to be unlikely - Brent Crude oil is still trading at around $25 a barrel, and Tapis around $22.

OPEC nations recently agreed to slash oil production by 10% to keep in-line with lack of demand thanks to coronavirus travel restrictions.

That, and petrol prices are already quite low - CommSec is reporting Brisbane's fuel price is at a 15-year low, and the national average is at a four year low of 107.2 cents per litre (CPL) as of last week.

As motorists, we're also still beholden to fuel price cycles, which on the east coast are in their low point right now - the Australian Competition and Consumer Commission (ACCC) is advising motorists to fill up now (seen below).

As well as this, the Australian fuel market mainly uses Tapis Crude oil delivered from Singapore's trading market - this extra link in the chain effectively insulates us from any sharp movements experienced elsewhere.

The weak Aussie Dollar also has a hand in affecting fuel prices, as barrels of oil are traded in US Dollars.

So, while prices are low, and will likely remain low for the next few months, they are unlikely to drop much further at the bowser.

sydcycle

Source: ACCC

"But what about the futures?!" you scream.

Forget about the futures Marge, it's Chinatown. 

chinatown

Source: Giphy

The futures price that fell into negative territory was for the May contract, which is due up Tuesday (US time), according to CommSec senior economist Ryan Felsman.

"The June US NYMEX contract - traded more actively - settled at a much higher level of US$20.43 a barrel, but was still down by 18%," he said.

Oil futures contracts are settled month to month - June's contract will be settled in late May.

Investing and finance expert Peter Switzer labelled futures selling as glorified gambling.

"No one expected the world’s demand for oil would fall by over 30%, during what looks like a three-month period of lockdowns and restrictions on people’s movements," he said.

"If you don’t understand it, don’t invest in it ... I don’t think this oil price plummet is a precursor to Armageddon but it does show how precarious the world economic situation will be until we start killing off this ‘business unusual’ phase of our lives."





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