Could Oil Really Fall To $0?

Analysts are now watching global storage capacity

The outlook for U.S. shale continues to darken with WTI testing sub-$20 territory. The supply glut could grow worse as the contraction in demand continues to deepen. On Sunday, President Trump extended the social distancing guidelines through the end of April, retreating from his plan to “open up” the economy by Easter. And before the ink was even dry on the $2 trillion stimulus, Congress has already started preparing the fourth emergency coronavirus legislation.   As of now, 193 million people in the U.S. and a staggering 2.3 billion people worldwide are living under some sort of lockdown order, according to Raymond James.

In early March, a few forecasters suggested that oil demand may be slightly negative in 2020, dipping by a mere 220,000 bpd. The call was somewhat provocative at the time. By the middle of the month, some forecasters said the demand hit could be as large as 10 million barrels per day (mb/d) in the second quarter. A few days later, another set of analysts put it at 13-14 mb/d. By last week, the IEA warned demand could fall by 20 mb/d. The negative revisions could keep on coming. Oil prices dropped sharply during midday trading on Monday. “For us, this is simply reflecting the increasing awareness that oil demand is breaking away, probably by much more than the 20% we have currently in our books for April/May,” JBC Energy said.

The market has fallen apart rather quickly. Some areas are seeing catastrophically low pricing, including prices dipping into negative territory in areas far from takeaway infrastructure. “Estimates for the demand side are being revised downwards on an almost daily basis, while on the supply side there is still no sign of any reconciliation between Saudi Arabia and Russia,” Commerzbank said in a note on Monday. Analysts are now watching global storage capacity, which could fill up in weeks or months at most. The contango for Brent between May and November has widened to a record $13.45 per barrel, a reflection of the massive short-term glut.

https://www.oilprice.com/

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