On the 21st of April, The Bombay Stock Exchange and Nifty witnessed a fall in equity shares after the United States of America crude oil futures market crashed.
The BSE index fell 1,195 points or 3.78 % to 30,453; while the broader NSE Nifty crashed 311 points or 3.36 % to 8,951.
The price of U.S. benchmark crude to be delivered in May fell below zero – a historic low – as storage capacity reached its limit. With this the global economy stood still as processors are using far less crude oil, due to the lack of the demand of transportation worldwide. The U.S., energy houses have so much unused oil and nobody is willing to take a crude contract.
The Novel Coronavirus or COVID-19 not only affected the people globally in terms of health crisis but also economically. Many economists predict a recession in the coming days, quite possibly, the worst economic crisis ever.
Umesh Mehta, the Head of Research at Samco Securities, addressed the media and said, “Some plants and businesses have been opened, but the supply chain is still incomplete – there is no consumption as of now with the lockdown.” He further added, “Things are really, really uncertain and, therefore, no one wants to commit right now although valuations are cheaper, as people are worried about ground level realities.”
Jason Bordoff, director of the Center on Global Energy Policy at Columbia University, said, “An unprecedented collapse to minus $40 oil at the U.S. benchmark had a lot to do with the expiry of the May contract.” He further added, “ underlying structural problems as storage capacity fills up that will hang over U.S. prices until supply shuts in and OPEC cuts begin to bite.”
The Energy Information Administration reported the hubs working on the storage of crude have a capacity of 76 million as of the 30th of September. However, due to the lack of demand, the hubs would store the capacity limit by the first week of May, if the demand for crude oil does not increase.
Meanwhile, the Indian rupee depreciated by 30 paise to 76.83 against the U.S., dollar in opening trade on the 21st of April.