Oil rates could fall below absolutely no: Analyst

Plunging oil prices could be headed a lot lower– possibly below no, according to one Wall Street expert.

West Texas Intermediate petroleum, the U.S. benchmark, fell by more than 10 percent Wednesday to near $24 a barrel, a level last seen in April 2002.

” Oil rates can go unfavorable,” wrote Paul Sankey, managing director at Mizuho Securities.

CORONAVIRUS CHOKEHOLD ON United States GETS WORSE OIL MARKET’S DISCOMFORT

The COVID-19 pandemic has brought the U.S. and international economy to a dead stop by triggering ” shelter in place” orders, social distancing in between individuals and the cancellation of non-essential travel. The sharp downturn in financial activity has cut the requirement for oil.

If that weren’t enough, Saudi Arabia just recently slashed oil prices and raised output after Russia declined to sign up with OPEC in deepening production cuts.

Oil is a 100 million barrel-per-day market, but Sankey says it’s possible that the economic fallout from the pandemic might zap demand, creating a 20 million barrel-per-day surplus.

He states the “physical reality” of the marketplace is that oil is pumped out of the ground and needs to be taken in or kept. When the expense of storage goes high enough– or space runs out– business may pay clients to take it.

For now, President Trump has actually ordered the Department of Energy to benefit from low prices by entering the market and purchasing oil for the Strategic Petroleum Reserve.

The reserve can develop at 2 million barrels each day, meaning that it has 4 months until it’s at capacity, Sankey stated.

By then, he included, high-cost oil from the Bakken shale formation in the U.S. or bitumen from the Canadian oil sands, “costs adversely due to the fact that it surpasses needs” and needs storage, Sankey wrote. “Unfavorable rates are merely a greater expense of storage than market.”

Sankey isn’t the only one on Wall Street who is sounding the alarm about the coming flood of oil.

Excess supply from OPEC and Russia, paired with falling apart need “are leading to concerns about a surplus that could overwhelm international storage,” wrote Francisco Blanch, a commodity strategist at Bank of America.

He warns the need damage brought on by COVID-19 and the cost war between Saudi Arabia and Russia might cause inventories to swell by 900 million barrels in the 2nd quarter alone. He approximates the world presently has about 1.5 billion barrels of offered storage.

Blanch’s worst-case circumstance isn’t as dire as Sankey’s.

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” In a serious scenario, if the marketplace struggles to discover a house for surplus barrels, then oil prices may need to trade down into the teenagers,” he wrote.

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