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Oil may turn negative again

29 April 2020

The oil price has found itself on a wild ride, plunging more than 20 percent in today’s trading session before pushing its way into positive territory as fears once again rose about the potential storage disaster that is approaching for what is known as “black gold”

The massive oversupply that is now the current situation in the oil market has rattled the financial world which caused the price last week to fall into negative territory which in easy terms meant that holders of oil contracts had to pay somebody to take it off their hands.

Another round of production cuts agreed to from countries such as Saudi Arabia, Russia and the US have helped the oil price rebound over the past week but the now it seems this may not be enough to stop the storage tanks overflowing and a reversal of price is in the making.

“The strength in both Dated Brent and WTI may be slightly overdone,” said S&P Global Platts’ global head of analysis Chris Midgley “Despite the forthcoming OPEC+ production cuts, more production needs to be cut, particularly in the US and Canada to avoid tank tops by June,” he added.

Some see the only way for the oil price to rebound is a sudden increase in demand from oil guzzling countries such as China or further productions cuts which at the moment seems unlikely as each country tries to protect their market share which means once again we could see the price fall below zero

 “The only way to turn around things is either a major boost in demand, which seems unlikely on the short-term, or further production cuts. As things are now, many producers are days away from seeing their production forcefully amputated, with shut-ins being their only option so that oil won’t spill above tank tops,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.



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