THE SUDDEN drop in fuel demand as a result of COVID-19 has seen an unprecedented fall in oil futures.
Last week West Texas crude oil intermediate futures dropped to an incredible -$US37.63 (-$A59.74) a barrel, the lowest price in history.
This has been consolidated in oil trade this week, with further weakness in the world's other benchmark oil futures contract Brent Crude, which is primarily focused on oil out the North Sea.
The reason for the negative figure is that investors are being forced to pay to have oil stored.
Storage facilities are now at capacity which is what has driven the dramatic drop.
In response powerful oil producers economies, such as members of the Organization of the Petroleum Exporting Countries (OPEC) sharply cut production to limit the drop in plrices.
It is expected Australian petrol prices will fall to around 80 cents a litre once the price cuts filter their way through the supply chain, little more than half the average price before the pandemic hit.
Even in rural areas, traditionally slower to see fuel price relief, there are reports of prices at these levels already.
The news has mainly been received positively by Aussie grain growers, pleased at the prospect of lower fuel bills, however, in the longer term there are concerns about falling prices in grain commodities with a close correlation to oil futures.
Growers also will not see immediate benefits, with fuel requirements for the imminent sowing period already in place..
Commonwealth Bank commodity analyst Tobin Gorey said with sowing already underway farmers had generally already been supplied with their fuel, bought at a higher price.
However, Grain Producers Australia (GPA) chairman Andrew Weidemann said a drop in prices would be of benefit at some stage.
"We as farmers chew through an awful lot of diesel at this time of year and if we have paid a bit more for our sowing requirements then we will probably make some savings for what we need for our spraying programs."
Mr Weidemann said farmers may look to take advantage of the low fuel prices by putting in additional storage but said he did not know of any oil derivative product that was available to growers to allow them to save without having to take physical ownership of the fuel.
He said the ag sector would be keeping a close eye on prices to ensure the retail values were in line with what was happening at a global level.
"We've seen in the past price drops are slow to filter through to the pump whereas price rises come in very quickly."
At present the negative futures do not extend past May, but in trade this week there has been significant pressure on June contracts.
The importance of the reopening, and restoring some demand, could not be emphasised more starkly than in the oil market," Mr Gorey said.
Mr Gorey said the issue for oil producers in many instances was that it was difficult to quickly or cheaply turn off supply.
"It is the same at the other end, it is difficult to ramp up production again, so at present they feel it is better to run at a loss for a brief while than stop and start, which is why the oil supplies are right up to the top of the storages."
He said while low fuel prices were good in terms of lowering input costs, the flip side for growers was the decrease in demand for feed grain for ethanol.
"Obviously, there is no good news for ethanol and its feedstocks in this price plunge," he said.
Mr Gorey said sugar producers would also be hard hit.
"Ethanol will not be competitive against gasoline at these values."
The Australian Competition and Consumer Commission (ACCC) is keeping a close eye on retail fuel prices to ensure discounts are passed on.
"The drop in the crude oil price is good news for the Australian motorists," ACCC chair Rod Sims said.
"At this time the Australian economy needs all the assistance it can get, and lower world crude oil prices are one of the few positives from current world events," he said.