Why Oil Could Drop to Negative $100

Here we go again.

Oil prices are slipping on storage concerns.  

Last checked, oil was down 26% to $12.49, and could easily slip back below zero — again.  All as global storage capacity plummets, and as COVID-19 keeps demand at extreme lows.  

“The market knows that the storage problem remains and we are on a calculated path to reach tank tops in weeks,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy, as quoted by CNBC. “Actions are needed now as the problem stopped being theoretical and far away. The storage clock is ticking for producers and we are approaching the final countdown if no further action is taken.”

Worse, oil prices could drop to -$100 a barrel, says Mizuho analyst Paul Sankey.

“Will we hit -$100/bbl next month? Quite possibly,” Sankey says, as quoted by Markets Insider. “We have clearly gone to full scale day-to-day market management crisis, and as we said when we first called for negative prices, the physical reality of oil is that it is difficult to handle, volatile, potentially polluting, and actually useless without a refinery.”

However, this should come as no surprise.

For one, Goldman Sachs has 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.

And two, 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.

Unfortunately, we’re nowhere near a bottom in oil prices.

Until we see a substantial draw of supply, and we see a return of demand, oil could easily fall even deeper into negative territory.  There are no solid arguments for oil right now.