The U.S. Energy Secretary says oil may now be at a bottom.
“I think we may be at a floor. I think the intent of this conversation with OPEC and the rest of the G-20 countries is simply to do exactly that, to mitigate,” said U.S. Energy Secretary Dan Brouillette, adding that prices would be much lower if no agreement had been reached.
But we’re nowhere near a bottom.
OPEC may have cut production by the biggest amount in history, but without demand, oil prices could easily head lower. Unfortunately, with too much supply, and no demand thanks to the coronavirus, oil could head to $10, near-term. Worse, OPEC now expects for crude demand to fall by 6.8 million barrels a day in 2020 – its weakest in 30 years.
“Even if OPEC members fully implement their share of the agreed cutbacks — a fragile assumption, given that many tend to cheat — they’d still be producing more than the market requires in the second quarter,” reports Bloomberg.
On top of that, we’re running out of places to store oil.
“While production cuts agreed by the Opec cartel and its partners at the weekend will bring about an unprecedented pullback in supply next month, facilities for storing the remaining surplus could be exhausted by the middle of the year,” reports The Straits Times.
“Never before has the oil industry come this close to testing its logistics capacity to the limit,” added the International Energy Agency (IEA).
With a good deal of pressure, oil could drop to as low as $10 a barrel.