Crude oil just plunged into negative territory – with no signs of near-term recovery.
Unfortunately, it comes as no real surprise. For one, there’s far too much supply. And with the coronavirus making life “fun,” there’s no demand. In some parts of the U.S. pump prices are down to 12 cents a gallon, and nobody wants it, says Bloomberg.
Unfortunately, a 10 million barrel a day cut from OPEC won’t help much.
Goldman Sachs has eve noted oil prices would continue to fall in the coming weeks, reasoning that a “historic yet insufficient” deal by major oil producers to cut output is unlikely to offset a coronavirus-led demand rout, as noted by Reuters.
"It hasn't taken long for the market to recognize that the OPEC+ deal will not, in its present form, be enough to balance oil markets," wrote Stephen Innes, chief global markets strategist at AxiCorp said, as quoted by CNBC.
Worse, there’s just not enough demand to offset supply issues.
As a result, we’re seeing a considerable buildup of supply with no place to store all of it.
“Traders are storing an estimated record 160 million barrels of oil on ships - double the level from two weeks ago as they seek to tackle a glut of stocks created by a slide in global demand from the coronavirus,” as noted by Reuters.
“Right now we don’t see any near-term relief for this oil market … we remain really concerned for the outlook on oil near-term,” says Helima Croft, global head of commodities strategy at RBC Capital. "“There is still a lot of crude on the water right now that is going to refineries that do not need it."
Until we see supply and demand balance, oil could easily drop well under $10.
Worse, negative prices may be possible. “There is no limit to the downside to prices when inventories and pipelines are full,” commodities hedge fund manager Pierre Andurand said as quoted by the Financial Post. “Negative prices are possible.”