Oil prices could fall below zero: Analyst
Oil ‘could go considerably lower’: The Schork Report publisher
The Schork Report Publisher Stephen Schork discusses his outlook for the oil markets.
Plunging oil prices could be headed a lot lower – possibly below zero, according to one Wall Street analyst.
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West Texas Intermediate crude oil, the U.S. benchmark, fell by more than 10 percent Wednesday to near $24 a barrel, a level last seen in April 2002.
“Oil prices can go negative,” wrote Paul Sankey, managing director at Mizuho Securities.
CORONAVIRUS CHOKEHOLD ON US WORSENS OIL INDUSTRY'S PAIN
The COVID-19 pandemic has brought the U.S. and global economy to a standstill by prompting “shelter in place” orders, social distancing between people and the cancellation of non-essential travel. The sharp slowdown in economic activity has curtailed the need for oil.
If that weren't enough, Saudi Arabia recently slashed oil prices and raised output after Russia refused to join 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 could zap demand, creating a 20 million barrel-per-day surplus.
He says the “physical reality” of the market is that oil is pumped out of the ground and has to be consumed or stored. When the cost of storage goes high enough — or space runs out — companies might pay customers to take it.
For now, President Trump has ordered the Department of Energy to take advantage of low prices by stepping into the market and buying oil for the Strategic Petroleum Reserve.
The reserve can build at 2 million barrels per day, meaning that it has four months until it’s at capacity, Sankey said.