Oil futures contracts are being absolutely destroyed in a price war right now whose main target is Russia. Following historically unprecedented events, Bloomberg reports by way of Zero Hedge that oil contracts on a per-barrel basis may drop to -$100 per barrel.
What also proven correct, just one month later, was Sankey’s apocryphal forecast when the May WTI contract crashed to negative $40 when it “suddenly” emerged that there is no place to store the hundreds of thousands of barrels of deliverable oil (held mostly by the USO ETF)…
Having been proven correct, was Sankey content and does he now think that Monday’s insane price action ws the bottom?
Oh no, not even close, because while sooner or later oil will soar – just as soon as the oil market shifts to a demand imbalance after millions of bpd in production has been indefinitely shut down and the global economy start to recover – in the meantime there is much more pain to come.
“We have clearly gone to a full-scale, day-to-day market management crisis,” said Paul Sankey taking a modest victory lap, and then, talking to Bloomberg, he went a step further on Tuesday, saying: “Will we hit negative $100 a barrel next month? Quite possibly.”
The reason: the (lack of) oil storage situation is going from bad to worse – something Reuters details so vividly in “Ships, trains, caves: Oil traders chase storage space in world awash with fuel” (source)
The economic effects of this are mostly against Russia. The US will be fine. If anything, prices should remain stable for most commodities (barring other virus-influenced disruptions), and may drop. Oil producing nations save those who America actively subsidized (i.e. Saudi Arabia) will be severely hurt, such as Russia.
We are in historically unique times, and things will likely become a lot more interesting.