Recently, we’ve gotten a lot of requests from our clients on what’s gone on with crude today. Here is our Chief Commodity Strategist John Skrinar’s remarks.
As of 3:30pm EST, May WTI has traded as low as -$40/bbl, and currently sits at -$36/bbl, and we still have 24 hours left. The last time something like this occurred in traditional commodity markets was during the Enron collapse when NEPOOL power traded for -$1,000/MWh. We do not see this situation ending anytime soon unless there is a major shift in demand. There is almost nowhere to store oil, with mid-May a likely scenario for the US to run out of onshore storage options, just in time for May physical deliveries. As May bbls are delivered, we will be approaching the June expiry (May 19). With US crude demand off 35%, where do we expect June delivery bbls to be placed? Our view is that this traumatic May expiry will likely spill over into June, July and likely August. It’s a bit of a game of chicken.
Our quick take:
US 2Q20 oil demand falls 35%
US 2020 demand off about 3Mbpd YoY
Global demand 2Q20 oil demand falls 24%
Q2 Chinese demand only falls 7%
Global 2Q demand falls ~20 million bpd
Global oil storage will fill in May
Massive 15+ MMbpd of global oil supply cuts are needed in Q2 to rebalance the market