Negative territory for oil prices is on the way, that’s below freezing $0.
Over 79 ships today are acting as floating storage vats for oil because the owners of the fuel are unable to find buyers or places to store their cargo on land, according to traders, shipping brokers and analysts, reports the Wall Street Journal.
Refinery shutdowns in China could add the equivalent of 250,000 barrels of crude a day in storage, both onshore and offshore, said London-based consultancy FGE Energy last month.
Meanwhile, OPEC+ is flooding the market with more oil, in a game of ‘who lasts longer’ market share showdown.
Oil Price.com reports that Wednesday the 18th of March 2020 will go down as one of the worst days in oil market history. US WTI collapsed by over 24% to settle at $20.37 a barrel, the third-largest daily price decline since records began, and experts expect it to go lower still. Brent crude traded at $25.52 per barrel Wednesday, down 11.5% for the day.
Since the coronavirus was declared by the WHO on March 11th as a pandemic, governments around the world have enforced social distancing, quarantine and travel bans, causing stock markets to crash and driving local economies to a standstill.
At the same time, we have seen markets flooded with oil on the supply side due to the breakdown of the OPEC+ alliance. This came after Russia refused to join OPEC on March 6 in deepening production cuts in an attempt to elevate oil prices. Saudi is now ready to produce 12.3 million barrels per day and export 10 million barrels per day (its highest ever export volume, according to OilPrice.com.
Global oil demand by the end of March could fall as much as 8 million to 9 million barrels per day (bpd), Goldman Sachs said, as per a Reuters report.
It is this situation where oil flows and demand withdraws that has led some market observers to call for “negative oil prices” before long.
Negative oil prices- Free oil to traders
Brent crude oil is at its lowest level in 17 years, but Mizuho Securities sees a scenario that could turn prices negative, according to Business Inside.
Brent’s year-to-date losses to 58%.
US exports, because of OPEC+’s new oil export policy, will dwindle to nothing from a roughly 4 million barrels of oil per day.
Mizuho’s analysis pegs the US’s spare capacity at 273 million barrels and estimates the tanks could top out in as soon as four months.
Negative prices could become a reality if the US can’t build new storage at the pace of its inventory buildup.
“It pumps out of the ground and has to be consumed or stored. This is not the equity market value of AAPL (Apple stock), or the gauge of consumer confidence. These cannot go negative,” Sankey wrote in a Wednesday follow-up note. “Negative prices are simply a higher cost of storage than market.”
Negative prices would effectively force producers to pay buyers to take barrels of oil.
Goldman forecast a fall in Brent prices to as low as $20 in the second quarter.