How Oil Prices Went Subzero: Explaining the COVID-19 Oil Crash
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How Oil Prices Went Subzero: Explaining the COVID-19 Oil Crash

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How Oil Prices Went Subzero: Explaining the COVID-19 Oil Crash

Explaining the Historic COVID-19 Oil Price Crash

The Great Lockdown continues to turn markets on their head.

Last week, we dug into the unprecedented number of initial jobless claims coming out of the United States, which topped 22 million in a period of four weeks.

It’s just days later, and we already have our next market abnormality: this time, traders were baffled by West Texas Intermediate (WTI) crude — the U.S. benchmark oil price — which somehow flipped negative for the first time in history.

How is that possible? And how does it tie into the COVID-19 oil price crash in general?

Setting the Geopolitical Stage

Oil is a geopolitical game, and big price swings always come with a geopolitical undercurrent.

This particular story picked up steam in February as OPEC+ producers tried to negotiate a production cut, amid concerns that COVID-19 could impact demand. Russia walked out on these meetings, and Saudi Arabia responded by undercutting oil prices by $6-8 per barrel.

The world went into lockdown, energy demand dissipated, and oil producers continued to pump at will. Then on April 9th, nearly a full month after COVID-19 was declared a pandemic, Russia and Saudi Arabia finally settled their differences.

However, this truce came too late — prices had already fell about 60% from February highs.

How Prices Went Subzero

Up until recently, this was a fairly run-of-the-mill oil price crash — but then prices suddenly sunk below zero, with May futures for WTI oil closing at -$37.63 on April 20th.

For the first time in history, producers were willing to pay traders to take oil off their hands. This oddity is partially a function of the particularities of futures contracts:

  • Buyers Wanted (At Any Cost!)
    Futures contracts normally rollover to the next month without much happening, but in this case traders saw the May contract as a “hot potato”. No one wanted to be stuck taking delivery of oil when the world is awash in it and the country is in lockdown.
  • A Time and a Place
    Oil futures contracts specify a time and place for delivery. For WTI oil, that specific place is Cushing, Oklahoma. With most storage capacity booked already, taking physical delivery wasn’t even an option for many players.

In other words, sellers outnumbered buyers by a crazy margin — and because oil is a physical commodity, someone has to ultimately take the contract.

At time of publishing, the May contract and spot prices have “rebounded” to about $10. The June contract is slightly higher, at $13.

“Never before has the oil industry come this close to testing its logistics capacity to the limit.”

– International Energy Agency (IEA), Oil Market Report for April

Overcoming the Supply Glut

What do you do when oil is practically free?

You store as much of it as you can, and hope that at some point you can sell it for more.

Unfortunately, everyone has the exact same idea, and as a result there is a historic glut that is filling up the world’s storage capacity both on land and at sea:

  • In March, it was estimated that 76% of the world’s available oil storage capacity was already full.
  • A record-setting 160 million barrels of oil is being stored on tankers at sea, according to Reuters.
  • The cost of renting an oil supertanker has gone through the roof. It’s jumped from $20,000 per day to $200,000-$300,000 per day, according to Rystad Energy.

It remains to be seen how fast the transportation industry will recover in a post-COVID-19 world, but for now the outlook for all oil producers is grim. The continued fallout will not only affect industry, but also the countries that rely on oil exports to balance their budgets.

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Energy

The Top 10 Biggest Companies in Brazil

What drives some of the world’s emerging economies? From natural resources to giant banks, here are the top 10 biggest companies in Brazil.

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The Top 10 Biggest Companies in Brazil Oct 10 Share

The Top 10 Biggest Companies in Brazil

In 2009, the at-the-time emerging economies of Brazil, Russia, India, and China held their first formal summits as members of BRIC (with South Africa joining in 2010).

Together, BRICS represents 26.7% of the world’s land surface and 41.5% of its population. By GDP ranking, they’re also some of the most powerful economies in the world.

But what drives their economies? We’re highlighting the top 10 biggest companies in each country, starting with Brazil.

What Are the Biggest Public Companies in Brazil?

Brazil isn’t just one of the largest and most diverse countries in the world, it is also an economic powerhouse.

With over 213 million people, Brazil is the sixth most populous country on Earth and the largest in Latin America. It’s also the wealthiest on the continent, with the world’s 12th-largest economy.

Once a colony focused on sugar and gold, Brazil rapidly industrialized in the 20th century. Today, it is a top 10 exporter of industrial steel, with the country’s economic strength coming chiefly from natural resources and financials.

Here are Brazil’s biggest public companies by market capitalization in October 2021:

Top 10 Companies (October 2021)CategoryMarket Cap (USD)
ValeMetals and Mining$73.03B
Petróleo BrasileiroOil and Gas$69.84B
AmbevDrinks$43.87B
Itaú UnibancoFinancial$41.65B
Banco BradescoFinancial$34.16B
WEGIndustrial Engineering$29.43B
BTG PactualFinancial$25.01B
Banco Santander BrasilFinancial$24.70B
Rede D’Or Sao LuizHospital$23.79B
XP Inc.Financial$22.45B

At the top of the ranking is Vale, a metals and mining giant that is the world’s largest producer of iron ore and nickel. Also the operator of infrastructure including hydroelectricity plants, railroads, and ports, It consistently ranks as the most valuable company in Latin America.

Vale and second-ranking company Petróleo Brasileiro, Brazil’s largest oil producer, were former state-owned corporations that became privatized in the 1990s.

Finance in Brazil’s Top 10 Biggest Companies

Other than former monopolies, the top 10 biggest companies in Brazil highlight the power of the banking sector.

Five of the 10 companies with a market cap above $20 billion are in the financial industry.

They include Itaú Unibanco, the largest bank in the Southern Hemisphere, and Banco Santander Brasil, the Brazilian subsidiary of Spanish finance corp.

Another well-known subsidiary is brewing company Ambev, which produces the majority of the country’s liquors and also bottles and distributes PepsiCo products in much of Latin America. Ambev is an important piece of Belgian drink juggernaut Anheuser-Busch InBev, which is one of the world’s largest 100 companies.

Noticeably missing from the top 10 list are companies in the agriculture sector, as Brazil is the world’s largest exporter of coffee, soybeans, beef, and ethanol. Many multinational corporations have Brazilian subsidiaries or partners for supply chain access, which has recently put a spotlight on Amazon deforestation.

What other companies or industries do you associate with Brazil?

Correction: Two companies listed had errors in their market cap calculations and have been updated. All data is as of October 11, 2021.

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Politics

Which Countries Have the Most Nuclear Weapons?

How big is the world’s nuclear arsenal? Here are the stockpiles of the nine countries with nuclear weapons.

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Visualizing Countries with the Most Nuclear Weapons 1200

Which Countries Have the Most Nuclear Weapons?

In theory, nuclear weapon stockpiles are closely held national secrets. The leading countries have rough estimates that aren’t regularly updated, newly nuclear countries keep their capabilities vague and unclear, and Israel has never officially confirmed a nuclear weapons program.

But thanks to limited disclosures, records, and leaks, we can visualize the full extent* of the world’s nuclear arsenal. This graphic uses estimated nuclear warhead inventories from the Federation of American Scientists as of August 2021.

Based on these estimates, there are just nine countries with nuclear weapons in the world.

Editor’s note: Exact numbers of nuclear warheads possessed by countries are closely guarded state secrets, with the FAS estimate being the closest, most-used, and most-trusted international approximation available.

Nuclear Weapons, by Country

The nuclear arms race has always centered around the U.S. and Russia.

After the end of World War II and well into the Cold War, the world’s two superpowers raced to build more nuclear weapons (and more capable nuclear weapons) than the other.

Even while international organizations lobbied for the end of nuclear proliferation, the world’s nuclear weapon stockpile grew to a peak of 70,300 total warheads in 1986.

As arms agreements and non-proliferation treaties started to gain greater momentum, the U.S. and Russia cut back on stockpiles while new countries with nuclear weapons started to pop up.

CountryTotal Warheads (2021)% of Total
🇷🇺 Russia6,25747.7%
🇺🇸 U.S.5,55042.3%
🇨🇳 China3502.67%
🇫🇷 France2902.21%
🇬🇧 UK2251.71%
🇵🇰 Pakistan1651.26%
🇮🇳 India1601.22%
🇮🇱 Israel900.69%
🇰🇵 North Korea450.34%

Despite reducing their stockpiles significantly since the end of the Cold War, Russia and the U.S. still own around 90% of all nuclear warheads in the world.

Far behind them are China and France, which started testing nuclear weapons in 1964 and 1960 respectively. The UK has the fifth-most nuclear weapons today, though it was the third country in the world to develop them after the U.S. and Russia in 1952.

The countries with fewer than 200 nuclear weapons are regional rivals India and Pakistan, which first tested nuclear weapons in the 1970s, and North Korea, which began to operate uranium fabrication plants and conduct explosive tests in the 1980s.

Israel is also estimated to have fewer than 200 nuclear weapons, and reports have its weapons program dating back to the 1960s. However, the country has never confirmed or announced its nuclear capabilities.

Countries With Nuclear Weapons, by Warhead Status

Though the world has 13,132 nuclear weapons, that doesn’t mean they’re all ready to fire.

Weapons (or “warheads”) are delivered by missile, and countries don’t keep all of their nuclear warheads primed for use. The estimation of nuclear stockpiles also clarifies whether warheads are considered deployed, reserved, or retired:

  • Deployed warheads are deployed on intercontinental missiles, at heavy bomber bases, and on bases with operational short-range delivery systems.
  • Reserve warheads are in storage and not deployed on launchers.
  • Retired warheads are still intact but in queue for dismantlement.
CountryDeployed WarheadsReserve WarheadsRetired Warheads
🇷🇺 Russia1,6002,8971,760
🇺🇸 U.S.1,8002,0001,750
🇨🇳 China03500
🇫🇷 France280100
🇬🇧 UK1201050
🇵🇰 Pakistan01650
🇮🇳 India01600
🇮🇱 Israel0900
🇰🇵 North Korea0450

Only four countries have officially deployed warheads, while the majority of the world’s nuclear stockpile is in reserve. This is partially due to estimates ranging from relatively transparent in the case of the U.S. to opaque and uncertain for countries like China and North Korea.

But some countries are expected to further bolster their stockpiles. The UK government announced it would increase its stockpile to no more than 260 warheads, and U.S. intelligence expects China, India, and Pakistan to increase their stockpiles.

Though the world’s nuclear stockpile will likely continue dwindling on account of U.S. and Russia retirements, the 2021 landscape of countries with nuclear weapons shows that proliferation is still underway.

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