Pop open a little bit of the bubbly or leave it on ice? With the way prices are trading, oil producers may decide to leave the black gold in the ground and walk away.
May West Texas Intermediate (WTI) crude oil futures crashed $7.17, or 39.24%, to $11.10 per barrel on New York’s Mercantile Exchange. June Brent crude futures plunged $1.39, or 4.95%, to $26.69 a barrel.
It is a real blood bath in the crude market.
So, what happened anyway? Supply and demand.
Due to most of the developed world under house arrest and economies on lockdown, global demand has crashed. It is estimated demand will continue to fall around nine million barrels per day for the foreseeable future.
At the same time, oil producers have ramped up output and flooded global markets with crude. The U.S. is still churning out around 12 to 13 million barrels per day (bpd), while OPEC+’s agreement to cut production to 9.7 million bpd, which is not enough.
There is so much oil that floating storage – oil stranded at sea without a booked destination – is nearing full capacity. Storage levels on land are also surging. The Crushing storage facility has seen a 48 percent jump, and global oil storage inventories have exceeded 70 percent.
Investors are still bullish on oil, pouring billions into the U.S. Oil Fund ETF (USO).
So, are negative prices next? Probably not, but $5 a barrel may be on the horizon.
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