REUTERS/Jim Urquhart
- US West Texas Intermediate crude oil could plunge to negative $100 per barrel next month, Paul Sankey of Mizuho Securities wrote in a Tuesday note.
- The call comes after WTI closed at a record low of about negative $37 per barrel on Monday. It was the first time the price of oil has fallen below zero.
- “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,” Sankey wrote.
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There could be further pain ahead for the oil industry, according to one analyst.
The price of US West Texas Intermediate crude oil could fall to negative $100 per barrel next month, Paul Sankey, managing director of Mizuho Securities, wrote in a Tuesday note.
“Will we hit -$100/bbl next month? Quite possibly,” Sankey wrote. “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.”
On Monday, the price of US WTI plunged to record lows, closing in negative territory for the first time ever, as traders worried about scare storage capacity for a supply glut of the commodity. The coronavirus pandemic has cratered global demand, weighing down prices even amid historic production cuts from OPEC. In addition, futures contracts for May delivery expired Tuesday, adding pressure to WTI.
Since, WTI for June delivery has rebounded and is trading in positive territory. Still, the US oil market gets fundamentally worse over the next month, according to Sankey.
“If you had a stinking barrel of oil in your backyard, would you pay someone $100/bbl to take it away? Yes, and you would probably be relieved you were not charged $300/bbl,” Sankey wrote.
He continued: “That is the situation we are in, of producers having nowhere to go with the inexorable production that takes weeks and months to reduce to zero. Of course, you now need someone to handle it for you. And they are sold out of capacity to do so.”
The call comes after Mizuho said in mid-March that oil prices could fall into negative territory.
“As I noted, of all the big calls, this was one you would rather not have come true,” Sankey said Tuesday. “But equally, one of the old lines is ‘if you don’t make a call, you can’t be right.'”
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