We could see a situation where oil is 'no bid'
Goldman Sachs today lowered its Brent oil forecast to $20 and Saudi Arabia ramped up its exports to 10 million barrels per day.
In the note, Goldman said it believes that crude demand is now down 8 million barrels per day. Others estimate upwards of 10 mbpd.
"Large commitments from core-OPEC for April/May deliveres pushes the net supply increase near 3m barrels per day, which, when combined with the demand losses, results in an April/May surplus of 7 million barrels per day, which will likely breach system capacity during 2Q20," they wrote.
The phrase 'breach system capacity' is code for: There is nowhere to put it.
Crude can go into storage for a period but capacity is limited. At some point, all the tanks are full. We're already in a situation where gasoline prices are selling for less than a barrel of oil. That means that if a refinery buys a barrel of oil and turns it into gas, it sells for less. Refineries will completely halt purchases if they no one is buying gasoline.
There will be people who will rent tankers for floating storage and buy oil now and sell it in the futures market for late 2020 or 2021 when demand rises but even that trade is limited by the number of storage facilities.
Once there is nowhere to put it and no one buying it at any price, the only thing that can happen is price falling. There's no limit to have far it can fall. There is a very real possibility it goes below $10, if not all the way to zero.
The declines won't start until there are mass shut-ins of production from major private producers and waves of bankruptcy.
