Strategists say that if the collapse in oil prices this week was bad, it could be fundamentally worse next month. In fact, prices could fall as low as -$100 per barrel.
Paul Sankey, the managing director of Mizuho Group, stated that oil is difficult to handle. It’s impossible to store oil everywhere. Storage will be full for May, so extreme negatives in the commodity’s prices are expected.
WTI crude oil delivery in June experienced a price bloodbath at the beginning of this week. May futures settled at the lowest level for the first time in US history, settling below zero, at -$37. Oil producers were paying buyers to get rid of crude oil since storage capacities were full of the commodity.
Sankey said that infrastructure and storage are the problems the market is facing today. Sinking demand is the biggest difficulty. Such a drop in levels of demand has never been seen in the modern era.
40 million barrels of Saudi oil are en route to the United States. This could influence the prices to reach negative rates again. The cargo takes 45 to 60 days to arrive. The market will not be able to handle this float of tankers, said Sankey.
However, the prices have been bullish for the last few days. WTI climbed 19.7%, or $2.72, and closed at $16.50 per barrel. The rates hit $18.26 in mid-morning trading. Brent crude raised 4.7%, or $0.96, and settled at $21.33.
The increase in crude oil prices was fueled partly by President Donald Trump’s threatening tweet that the US would destroy any Iranian gunboats harassing American ships. Since the June WTI contracts expire on May 19, they could sink in the same way as the May contracts did.