Bad News for US Energy-Debt Miracle: Oil Plunges to 17-Year Low

Hit $26 — the level it was at before Bush drove up the price by invading Iraq and printing up monies

Late on Tuesday, WTI plunged as low as $26.20 taking out the lows from the 2015/2016 oil recession, and sending it to a level last seen when US president was George W. Bush, people were listening to Get Busy by Sean Paul and Dogville was one of the most popular movies: May 2003.

While there was no immediately clear catalyst, earlier in the day, Goldman’s commodities team published a report in which they discuss the need for commodity prices to drop below cash costs to generate supply curtailments as demand losses across the complex are now unprecedented, as Goldman now believes oil use is down an unprecedented 8 million b/d:

Large commitments from core-OPEC for April/May deliveries pushes the net supply increase near c.3m b/d, which, when combined with the demand losses, results in an April/May surplus of 7mb/d, which will likely breach system capacity during 2Q20.

As Goldman’s Jeffrey Currie wrote, “the system strain creates a physical end, even though when COVID-19 will end is unknown, pushing our forecasts to shut-in economics. We now forecast 3m GSCI -25%.” As a result of price wars in oil and gas and uncertain policy responses in bulks and base metals, all a direct result of the sharp fall in demand resulting from the COVID-19 containment measures, Goldman has cut its 2Q Brent price target to just $20/bbl from $30/bbl.

But that was not the worst of it for what little is left of oil bulls.

Outdoing not only Goldman, but virtually every single bearish oil analyst in existence, Mizuho’s Paul Sankey not only estimated that Goldman is too optimistic by half, calculating a whopping 15MM b/d in oversupply currently, but that crude prices could go negative – yes, as in you would be paid to take delivery– as Saudi and Russian barrels enter the market.

According to Sankey, much of the US 4MM bpd in crude exports will be curtailed as prices fall and tanker rates soar. And with US storage roughly 50% full, and able to take another 135MM bbl more, assuming a build rate of 2MM b/d, the US can add 14MM bbl/week for 10 weeks until full.

As a result, there is a now race between filling storage and negative pricing “unless U.S. decline rates can outpace inventory builds, which we very much doubt.”

Said otherwise, absent dramatic changes, in roughly 3 months, energy merchants will be paying you if you generously take a couple million barrels of crude off their hands.

Which is why despite its low price, oil may still have at least 100% (or more) to drop.

Source: Zero Hedge

  1. Mary E says

    This couldn’t have happened to better and more deserving people! The ones who needed a bit of major payback!! The US was so intoxicated by being the biggest oiil producer in the world –
    despite the cost to themselves….and it was all about the Show..the appearance of being the biggest, baddest and best….and now the curtain is pulled away and we see just a
    bunch of loonies losing big bucks on getting shale oil and gas out of the ground just to be able to say We Did It! Yes, they did make big asses out of themselves…poor ones at that!!

    1. Carlos Santos says


  2. thomas malthaus says

    Dollar-ruble is now 1 to 82, respectively.
    Russia-US dollar trade is about to bite the dust.

    I like the ruble and metals right now to diversify from dollars.

    Saudi Crown Prince MBS is likely feeling more insecure as spot oil drops.

    1. Carlos Santos says

      Saudi Arabia’s gold should not be in its territory.

      Google Tradutor.

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