Oil prices dropped to less than $12 a barrel.
Unfortunately, it comes as no real surprise. In fact, at $20 a barrel on April 15, we said there was a strong possibility of $10 a barrel. We could even sub-$10 at this point. All because there is no demand with an unbelievable amount of supply.
For one, OPEC is of no help at all.
Granted, OPEC will cut by 10 million barrels beginning May 1, 2020 and will extend until the end of June 2020. Cuts will then taper off to 7.7 million a day from July 2020 through the end of the year. Then, it will taper off again to 5.8 million from January 2021 through April 2020.
But that’s nowhere near enough.
At the time of the cut, even Goldman Sachs said 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.
Two, there is no demand for oil.
With the coronavirus keeping most of us indoors, there’s no demand for oil. As a result, we’re seeing a monster buildup of supply with no place to store all of it. Worse, “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.”
At this rate, oil could easily plunge to less than $10 a barrel.
Until the coronavirus story disappears, and we begin to see price demand recovery, oil will not even see $20 a barrel again any time soon.
