The situation with oil prices will worsen

US, WASHINGTON (ORDO NEWS) — Breaking the hopes of some oil producers, who expected negative prices to be nothing more than a deviation from the norm, the June WTI contract fell sharply on Tuesday.

During intraday trading, June contracts collapsed by more than 45%, reaching almost $ 11 per barrel. The oversupply remains, and the collapse of the May contract was not just an anomaly, but an indicator of the acute oversupply in North America.

According to several analysts, in a month you can prepare for the next reduction in prices for negative territory. “We expect a similar price movement to happen in late May when it comes to the June contract,” says Raymond James.

In addition, by noon Tuesday Brent fell below $ 20 per barrel, falling by more than 25%.

Although, according to forecasts, by the end of 2021, US oil production will be reduced by 1, 2 or 3 million barrels per day, depending on which analyst’s assessment to listen to. Amid a lack of storage and falling prices, closures can begin very quickly. “The reality of an oversupply in the oil market is likely to lead to lower prices for the June WTI contract,” Goldman Sachs analysts write. when demand recovers, prices can begin to rise.”

“This tipping point will end in a few weeks, not months. The market will be forced to balance in this situation until June,” Goldman analysts warn. In other words, the US oil industry could lose several million barrels a day in a few weeks, what Goldman analysts call “violent rebalancing.”

The crisis for the industry has entered a new phase. Of course, it will lead to a new development of events. The Trump administration is trying to find ways to bail out the industry. On Monday, President Trump offered to consider stopping oil imports from Saudi Arabia. He also recalled his plan for replenishing strategic oil reserves with 75 million barrels of oil.

On Tuesday, he tweeted that he ordered the US Secretary of Energy and the Treasury to prepare a rescue plan.

Also on Tuesday, the Texas Railroad Commission criticized the idea of cutting production. Two out of three commissioners are against the idea of voting on this proposal. And Ryan Sitton, the only commissioner who advocated a 20% reduction in production in the state, argued that the lack of voting alone would allow the market to randomly reduce production. “I do not believe that we should be inactive,” said Sitton.

Meanwhile, there are other ideas for government intervention. Oil and gas industry calls on Fed to loosen $ 600 billion line of credit so drillers can use funds to pay off debt.

“The Treasury can guarantee loans to troubled companies in exchange for shares in equity, and Washington can use its voting shares to close (as part of a deal with OPEC +),” ClearView Energy Partners notes.

So, against the background of an oversupply in the oil market, there is an overabundance of unusual political reactions from Washington, which is trying to bail out the industry.

But amid falling demand by 25-30 million barrels per day, the US government can do little to prevent sharp losses in production and bankruptcy.

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