What A Day – 20th April !!!

By Samuel Ekong (Ph.D.)


The day 20th April is significant in history, like many other days. The Gregorian calendar (named after Pope Gregory xiii) has April 20th as the 110th day of the year (111th in leap years). My curiosity in this day is provoked by the magnitude of devastation that was created in the oil and gas sector on the same day in the year 2010 and 2020 (a span of one decade).

Considering the latter first, April 20th, 2020, came in the midst of the novel corona virus pandemic, whose origin was traced to Wuhan, Hubei Province, China Corona Virus Pandemic, tagged COVID-19 (Corona Virus Infectious Disease – 2019) has caught the world’s attention since late 2019 till now, and will continue for months to come and possibly years.

The magnitude of its concomitant devastation on health, business, and economy are enormous. The World Health Organization (WHO) has described the virus as “an unseen enemy” that has threatened the existence of humans as well as the sixth public health emergency of international concern on 30th January 2020. World leaders have equally submitted that this pandemic is not a fight against an army or another nation, but an “invisible enemy” with the greatest threat to global public health of the century,

On the flip side, the relative impact of COVID-19 pandemic on the global environment has been a positive one. To minimize the spread of the virus, various lockdown measures have been put in place across the globe. Local and international flight travels have been grounded, vehicles are hardly found on the roads, resulting in almost zero emission of green-house gases to the environment. Furthermore, lesser demand of power in industries has equally reduced the use of fossil fuels.

In addition families have experienced a bonding time as both parents and children are ‘locked down’ together at home. Children now understand better the nature of their parents’ work, while parents participate more actively in their children’s school work. Likewise inhabitants in some big cities are experiencing clear skies for the first time in their lives. These have led to some level of recovery of the ecosystems and that of the ozone layer. However, one sector of the world economy so badly hit by this pandemic is the oil and gas industry, for the obvious reasons that the industry powers the economies of the world, which were brought to a standstill.

April 20th 2020

The day April 20th 2020 will not be forgotten in a hurry. That day witnessed the price of US futures crude oil contract dropping more than 100% and turning negative for the first time in history.
Futures contract is an agreement to buy or sell a certain number of barrels of oil at a predetermined price, on a predetermined date future. When oil futures are purchased, a contract is signed between buyer and seller. This contract is protected with margin payment that covers a certain percentage of the total value of the contract. While end-users of oil purchase on the futures market to lock in a price; investors buy futures to essentially risk on what the actual prices will turn out in the pre-determined date, and profit by predicting correctly.

Specifically, West Texas Intermediate (WTI), the benchmark for US oil, fell as low as minus $37.63/barrel as worldwide oil demand collapsed  drastically due to the impact of coronavirus pandemic shutting factories and limiting travels within nations and around the world. Consequently, there was a glut of oil supply and dwindling space to store it. This situation forced sellers to pay buyers to take the oil off them.

Did WTI Go Negative Alone?

WTI was not the only commodity to dive into negative territory on April 20, 2020. Across the border, the price of Canadian Western Select (CWS), a type of crude oil blend produced with oil-sands bitumen, was also pushed to below zero. This oil blend often trades at a discount to WTI due to its additional transportation and refinery costs. The negative price phenomenon forced several Canadian oil companies to also pay to get rid of their product. Interestingly, futures contracts on other commodities, including natural gas, had broken below zero before, but this was the first time the WTI and CWS went negative.

Can Negative Trading Reoccur in the Future?

Whereas, the oil market analysts cautioned that this price plunge into negative territory was not reflective of the true reality in the beaten-up oil market. Premised on the June WTI contract, which expired on May 9th 2020, with contract price declining about 18% to settle at $20.43 per barrel. This contract, which was more actively traded, indeed was a better reflection of the reality in the current oil market dynamics.
However, Jim Cramer, the host of Mad Money on CNBC and a keen market analyst and commentator is quite optimistic that the price of the current oil futures contract could go to zero again even faster than the May contract did, saying “This has to go to zero again, because we haven’t any more space,”

Was COVID-19 a Lone Determinant to Negative Oil Prices?

Like Liverpool Football Club’s anthem “You’ll Never Walk Alone”, it is of interest to note that COVID-19 was not the lone determinant for the downward trajectory of oil and gas prices. It only became the proverbial last straw that broke the camel’s back. By the virus’ very nature of attack, it deals more devastating blows on its targets – humans who already have pre-existing health conditions. In the same vein, the oil and gas sector was already crawling with “pre-existing” unstable conditions due to a tripartite world events.

First, the geopolitical tension between the United States and Iran as a consequence of the assassination of Iranian top military leader – General Qassem Soleimani by the US on January 3rd 2020. This attack was immediately retaliated by Iran by striking up to 22 Qiam ballistic missiles on US and Iraqi al-Asad Airbase in Anbar. The attack and counter-attack sent shivers of another war across the region and indeed the world oil market.

Second, higher tariff barriers between the US and China resulting in the trade war between the 1st and 2nd biggest economies in the world which started on 6th July 2018. Recall, during 2016 presidential campaign, the US President Donald Trump promised to reduce the huge trade deficit with China, claiming that the deficit was largely based on unfair Chinese trading practices, including theft of American intellectual property, forced technology transfer, lack of access to market for American companies based in China as well as an unleveled playing field caused by Beijing’s subsidies for favored Chinese companies.

In 2017, China imported $130 billion worth of goods from the U.S., while the U.S. imported $504 billion worth of goods from China. Liquefied natural gas (LNG) as well as liquefied propane are among the top seven tariffed imports from the U.S., exacerbating further pressure on the oil and gas market. Others include soybeans, gold, copper waste, paper waste and cotton.

Third, the frosty relationship between two of the world’s largest producers of crude oil -the Kingdom of Saudi Arabia and Russia Federation finally collapsed in March 2020 when Saudi Arabia initiated a price war with Russia, facilitating a 65% quarterly fall in the price of oil. In the first few weeks of March, US oil prices fell by 34%, crude oil fell by 26%, and Brent oil fell by 24%. The price war was triggered by a break-up in series of dialogue between the Organization of the Petroleum Exporting Countries (OPEC) and Russia over proposed cuts in oil production in view of the dwindling global demand, occasioned by the COVID-19 pandemic.

Expectedly, Russia walked out of the agreement, leading to the fall of the OPEC alliance. Oil prices had already fallen 30% since the start of the year due to a drop in demand. Besides exacerbating further pressure on the global oil and gas market, the price war is regrettably one of the major causes of the ongoing global stock-market crash.

April 20th 2010

Exactly a decade earlier, on April 20th 2010, one of, if not the darkest days in the history of oil and gas industry occurred. The cause of which was not an “unseen enemy” like the 2020 case of corona pandemic, but series of human mistakes. An explosion rocked the Deepwater Horizon drilling rig – located in the Gulf of Mexico, some 41 miles (66 km) off the coast of Louisiana, USA. The impact of the explosion killed 11 oil workers, causing the rig to sink, a massive oil discharge of oil into the Gulf of Mexico and a huge environmental disaster. For months, images of dark waters, black plumes and oil-covered wild life was a common feature in the region.

The incident brought about many historical superlative accounts. First, approximately 4.9 million barrels of oil was spilled into the water, recorded as the largest marine oil spill in history. Second, about 68,000 square miles of the Gulf was contaminated, leaving a devastation on thousands of mammals, birds and sea turtles plastered with leaked oil and stranded; the largest mortality event to occur in the Gulf of Mexico. Third, Reuters reported that BP paid up to $18.7 billion in penalties to the U.S. government and five states to resolve most claims from the spill, resulting in the largest financial penalty ever leveled by the U.S. government against a single company.

Please keep in mind that the estimated costs of the spill, including hidden costs arising from the revenue lost, profit not earned, or reputation damaged due to the disaster came up to circa $145 billion.

Leadership response to Negative oil Prices

A key lesson from the negative price of oil on April 20th 2020 is how world leaders prepared and took advantage of the historical event. For instance, President Trump, as controversial as his views and actions could be, did take full advantage of the phenomenon. One question beckoning for an answer is …did America see it coming? As far back as March 13, the president had announced his intention to fill the Strategic Petroleum Reserve (SPR) to the brim. Note that the intention of the SPR is to guarantee continued availability of oil for use in case of emergencies such as the 1991 Iraq War, and Hurricane Katrina catastrophe of 2005.
As at 17th April, the reserve contained 635 million barrels of its current authorized limit of 713.5 million barrels. For emphasis, the SPR has a total storage capacity of 727 million barrels (it will take 404 days of continuous production by Nigeria, at average daily production of 1.8 million barrels/day to fill the reserve capacity). The SPR is stored in a complex of four underground sites along the Gulf coasts of Texas and Louisiana, in the south of the United States.
On the D-day, America swung into action to fill her SPR. President Trump said “If we could buy it for nothing, we’re going to take everything we can get, this is a great time to buy oil and we’d like to have Congress approve it.”


COVID-19 pandemic stunned the oil and gas industry unawares, flooding the market with more supply than the world can utilize. In the words of Fatih Birol, the head of the International Energy Agency (IEA), on a call with journalists, “In a few years’ time, when we look back on 2020, we may well see that it was the worst year in the history of global oil markets, April may well have been the worst month. It may go down as Black April in the history of the oil industry.”

This pandemic is here to stay, at least for now till a proven vaccine is discovered. However, things will never be the same post-COVID. Many businesses may not return, many already filing for bankruptcy, many seeking huge bail-out funding. Individuals, organizations, governments ought to stay positive, creative and explore opportunities even in this pandemic….after all, nothing in life is permanent.

About The Author
Samuel Ekong (Ph.D.) is an accountant, economist, educationist and policy analyst. He is currently the Head, Finance Advisory to the Production Business in Nigeria LNG Limited. He has over three decades combined experience in the consulting, aviation, energy and academia. He can be reached at [email protected]
‘Views expressed in this article are personal and do not represent the views of the organization the author works for or any Institutions he is affiliated with.’

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About The Author
Samuel Ekong (Ph.D.) is an accountant, economist, educationist and policy analyst. He is currently the Head, Finance Advisory to the Production Business in Nigeria LNG Limited. He has over three decades combined experience in the consulting, aviation, energy and academia. He can be reached at [email protected]

Post Author: Friday Ekeoba