Oil Prices Crash to 20-Year Low, Negative Prices Possible Again in Mid-May
Oil prices have crashed to their lowest level in over two decades, as the selloff in global commodity and financial markets continued at the start of this week. The June contract for WTI crude stood at around US$11 per barrel in early trade on Wednesday, while the near-month contract for Brent crude was trading at just under US$17 per barrel. The negative prices witnessed at the beginning of this week by the expiring May contract for WTI, while widely considered a technical anomaly, indicate a massive supply glut that is unlikely to subside for several months until production cuts and shut-ins take effect and oil demand recovers.
Current estimates of the drop in oil demand over the next quarter due to the impact of the Covid-19 pandemic range from 15 million barrels per day up to as high as 30 million barrels per day, amounting to roughly 15% to 30% of total demand. Planned production cuts by the OPEC+ group of producers are only scheduled to take effect from May 1st, although talks to bring forward these cuts by a week are reportedly now underway.
Several analysts are now even predicting a return of negative prices next month when the current futures contract for WTI approaches expiry. Forecasts suggest that U.S. oil production could fall by up to 3 million barrels per day by the end of next year, but the market might continue to remain oversupplied till then as crude from other parts of the world become available to North American refiners at throwaway prices. Oil storage capacity around the work is also expected to run out over the next month or two at most, and only a steep drop in production would then be able to bring the market back into balance.