At the beginning of the year, no one had ever thought that 2020 would turn out to be one of the worst years in the oil market history, eroding almost two-thirds of its value in few weeks only.
Oil prices have lost nearly 68% in last quarter to plummet towards $19.27 a barrel, the lowest level since 2002 amid the global coronavirus pandemic that has led to a worldwide economic recession and slashed whopping oil demand.
On January 08, 2020, prices soared to $64.39 a barrel, the level was last seen in November 2018 and also the highest level of this year till date but who thought that level would look like a sky-touching-mountain in March when prices slipped below $20, cheaper than a mineral water bottle.
At this juncture, the market is facing gargantuan glut and, very little storage capacity is left. The ballooning spread between Crude oil’s near month and far month futures are hinting that the market is flooding with massive supplies and weaker demand at present, creating a big challenge to those who want to reap the benefit of historically cheaper oil prices.
Spread between Crude Mcx April and May stands at almost littler over 300 points or almost 19%, last time market faced similar carry-cost problem in 2008-2009’s meltdown. While Spread between Crude Nymex May and June stands at almost $4 or almost 20%.
Some forecasts suggested that oil demand would hit by 10mbpd in Q2, 2020 while, another set of predictions hinted drop in demand by 13-14mbpd but in the last week of March, the IEA warned demand could plunge by 20mb/d.
How oil prices will react from now onwards, despite the very attractive valuations, will depend on how long global lockdown will persist to prevent the spread of coronavirus or how long the pandemic will continue. If the situation prolongs, oil prices will remain cheaper for an extended period but we don’t expect a further correction from here will be sustainable.
On the other hand, once the pandemic will over, there will be V-shape recovery in the oil market in the first response to it. What we can quote as of now is a cure for low prices is low prices.