Negative oil prices could trigger price boom

THE boom-to-bust oil market is experiencing one of its darkest moments in history.
Oil demand is collapsing because of the coronavirus crisis.
Supply is shrinking — but not nearly fast enough.
The world is literally running out of room to store unneeded barrels of oil piling up during the coronavirus pandemic. That storage problem is so dire that it caused oil prices to turn negative this week for the first time ever.

The crash is forcing a reckoning in the oil industry – a painful one. Many shale oil producers have canceled drilling plans. Others have been forced to shut down active wells. Some frackers won’t survive at all. But the violent rebalancing in the oil market might be so overdone that it will set the stage for a spike in prices. When and if demand recovers, there might not be enough supply to meet it.

“We are in an epic bust. As hard as it may be to believe, the next step is a boom,” said Pavel Molchanov, energy analyst at Raymond James.

Some 3,6 billion people are living under lockdowns around the world, Molchanov estimates. Passenger flights have been grounded.
Many factories are dark. World oil demand is expected to plunge by a record 9,3 million barrels per day in 2020, according to the International Energy Agency.
But that won’t last forever. At some point, the world will thirst for oil again.
“When demand returns to something close to normal levels, it’s quite possible there will be a shortage situation in 2021,” Molchanov said.
OPEC, Russia and a group of other oil-producing countries have already agreed to slash production by a record-setting 10 million barrels beginning in May.
Market forces are causing non-OPEC producers, led by the United States, to similarly cut output.
The shocking collapse in US oil to $-40 added an exclamation point to the problem facing the industry. Oil futures require that holders of a contract take delivery of barrels when the contract expires. But no one wanted to get crude delivered to them in May when storage capacity may run out. Even if it doesn’t run out, storage costs have skyrocketed.
No one knows for sure how the demand picture will look. Much of that will be determined by the trajectory of the pandemic and the willingness of people to return to pre-crisis activities like road trips, cruises and flights.
Trainer, the New Constructs CEO, is betting they will.
“We’re social creatures. We’re going to want to get back to normal,” he said. “There’s a significant amount of the population that will party like it’s 1999. They’re sitting at home bored out of their minds.” — CNN