The speed at which the corona Virus swept around the world is staggering. The effect is akin to bumper to bumper traffic driving at full speed down the freeway only to find everyone coming to a screeching halt at the front followed in quick succession by everyone in the chain behind.
Oil and Lobsters
The speed at which the corona Virus swept around the world is staggering.
The effect is akin to bumper to bumper traffic driving at full speed down the freeway only to find everyone coming to a screeching halt at the front followed in quick succession by everyone in the chain behind.
So, with most world production being produced in line with demand, the virtual overnight cessation of demand has resulted in supplies of most things accumulating in the supply chain.
Toilet paper did not accumulate because hyper demand stockpiled the rolls at home. Oil on the other hand only has limited places it can be stored. Big tanks to receive incoming shipments can not be built overnight so as they get filled up, the ships arriving have no place to unload the oil.
This causes the production wells to lose the ships leading to wells shutting down.
World demand has been estimated to have dropped by 20% and some wells are now closing around the world. Some Countries have now filled up their storage tanks and so they too have put up the closed sign to further deliveries.
This overcapacity has been so quick that producers have not been able to reduce supply in line with demand. This oversupply combined with nowhere to go has seen the amazing sight in the futures markets where forward contracts are negative. What that means is that anyone who is prepared to agree to buy oil in say three months’ time, will be paid by the seller of the future oil contract to take the contract. Easy money if you have a big enough tank.
In Australia we are seeing the price under $1 and not likely to get dearer in the medium term as suppliers and wholesalers desperately try to offload inventory.
Lobsters on the other hand along with all the high-quality choice food stuffs that normally get shipped overseas is now finding its way into the local supply chain.
Japanese prime Tuna normally $130/kg is now available in Coles supermarkets around $80/kg. Is it any tastier than the fare we get normally? Interested in finding out. So, filling up the car with cheap petrol and only being able to drive to the supermarket for now, I am looking forward to trying some different cuisine.
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