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Michael Kern

Michael Kern

Michael Kern is a newswriter and editor at Safehaven.com, Oilprice.com, and a writer at Macro-Investing.com. 

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Are Oil Prices Heading Back Into Negative Territory?

Oil slipped another 20 percent in early trading on Tuesday morning before paring some of its losses as the world continues to grapple with lockdown orders. The one-two punch of low demand and global storage nearing capacity leaves analysts pondering the once-unthinkable once again; could oil prices be heading back into negative territory?

While some American states are planning to 're-open' later this week, much of the world remains under stay-at-home orders, leaving streets in some of the world's biggest cities virtually empty. The COVID-19 crisis has left markets in a state of disarray, with oil and gas being hit the hardest due to the sheer drop-off in demand.

To make matters even more complicated for oil markets, global storage is nearing its capacity, with some financial firms, including Goldman Sachs, predicting the world will run out of storage space by mid-May.

Though outlook remains grim for the near term, not all hope is lost just yet. UBS, a Swiss financial firm, sees oil prices rising by as much as 115 percent by the end of the year.

"While the oil market is heavily oversupplied this quarter, we expect it to move toward balance next quarter and become under-supplied in 4Q this year as lockdown restrictions are eased and oil demand picks up," Mark Haefele, chief investment officer at UBS Global Wealth Management, explained.

OPEC, which is preparing to roll out its joint plan to cut global oil production by 9.7 million barrels per day, is even more hopeful, predicting a recovery by the second half of the year.

Mohamed Arkab, Energy Minister of OPEC’s rotating president Algeria, noted, “the global economy is not going to stay paralyzed,” adding that he predicts the price of the Brent benchmark could reach $40 by the beginning of the third quarter.

Optimism aside, oil is still facing an uphill battle, and even with some states lifting stay-at-home orders, uncertainty is still driving markets. If the reopening doesn't go as planned, however, it could lead to even more devastation, and in turn, even more downward pressure on oil prices.

By Michael Kern for Oilprice.com 

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