by How do oil prices affect the dollar exchange rate? How does the price of oil affect gasoline? When should we expect and anticipate a drop in fuel prices in Ukraine? And finally, how can the price of oil be negative? These and other questions have become as popular in recent days as the statistics on the spread of COVID-19 and the coronavirus itself.
Of course, in our country, there are no fewer armchair analysts than military experts and strategists.
Therefore, it’s not surprising that social networks have been buzzing with discussions about how the dollar exchange rate will change, what will happen to the economies of the USA and Russia, and what to expect for Ukraine. Let’s say right away – we are not experts in this field, so we have gathered key points from various sources (mainly from renowned media like BBC, CNN, Reuters, etc.).
Given the pandemic has led to a global quarantine, terms like WTI crude oil futures have suddenly caught the interest of many. After all, if oil has fallen below zero, it’s the best time to understand the exchange and learn more about how to buy WTI oil.
Yesterday, the WTI crude oil price on electronic trading on the New York Mercantile Exchange (NYMEX) reached a negative value for the first time in history – down to minus $40 per barrel! However, already today, the price has risen to more than $2 per barrel. The price of Russian Urals oil also began trading at a negative price yesterday — -$2 per barrel.
But let’s address the more basic and pressing issues – what does all this mean and how will it affect us and will it affect us at all?
How can the price of oil be negative?
Just a few words on this topic. You extract crude oil and store it with your neighbor, who has a few “barrels” for people like you. When consumption falls due to quarantine, storages fill up faster and faster, meaning sooner or later there will be no place to store oil. What to do? Pay those who have storage to reserve an empty space for next month.
Otherwise, production will have to stop. This is very primitive and unprofessional from the perspective of the oil market, but it gives an understanding of the current situation.
When will gasoline prices decrease in Ukraine
The reduction in market capacity due to the suspension of passenger air and rail transport, the halt of public transit, and the reduced use of private cars – all these factors will force gas station networks to compete and reduce margins. However, we must not forget that we live in an amazing country where it is common to immediately react to the weakening of the hryvnia but ignore the dollar’s drop and/or the price reduction of oil.
The analytical department of DiXi Group believes that “The further decline in demand for oil and the reduction of the retail market for oil products will intensify the trend towards cheaper fuel, but it could be counterbalanced by the weakening of the hryvnia against the dollar. At the same time, these factors share one characteristic – volatility under the influence of external irritants (the COVID-19 pandemic and measures aimed at overcoming it), which makes long-term forecasts for fuel prices quite problematic.“
How will oil prices affect Ukraine’s economy
First of all, oil price fluctuations impact producing countries. However, these “swings” will also affect other countries, including Ukraine.
It must be acknowledged that Ukraine reacted to the situation quite quickly and efficiently:
- The leadership of “Naftogaz,” “amid the noise,” offered the world its storage facilities for oil
- “Ukrtransnafta” began buying oil to replenish its reserves
- The possible benefit was also calculated by the NBU, stating that Ukraine in 2020 could save 5-6 billion dollars due to a 50-60% reduction in oil and gas prices, which account for 20% of the total import
The head of the political programs of the Ukrainian Institute for the Future, Yuriy Romanenko, believes, “The low oil price has only one significance – it demonstrates the level of the abyss into which the world economy is flying. So I wouldn’t rejoice. Because other raw materials produced by Ukraine will follow. And it does not produce that much nor such a variety.”, the expert believes.
According to Romanenko, the Ukrainian economy is at serious risk of being hit, since Ukraine lacks a domestic trading market of the necessary size – unlike the USA or China.
What should we expect?
Most likely, nothing good. After all, there are both advantages and disadvantages to cheaper oil, and how the government can utilize one and resist the other will determine how we celebrate the New Year 2021.
With red caviar or with three crusts. But in any case, one should always rely only (!) on oneself, trying to find personal benefit from the situation for oneself and one’s loved ones.
