US oil prices dropped 9% on Tuesday, their worst day since mid-May. Oil fell to a low of $ 36.13 per barrel, its weakest level in nearly three months. Brent crude, the world benchmark, fell below $ 40 a barrel for the first time since the end of June.
“Demand is down. Supply is up,” said Robert Yavar, director of energy futures at Mizuho Securities. “Economic rules for survival on both ends of the spectrum are being violated.”
“It’s a double-blinking warning sign,” Yauger said. “OPEC is nervous today, giving a bad signal to the energy community.”
‘Avalanche of sell orders’
The latest turmoil in the oil market comes during a major unrest in the stock market.
“Oil analyst is stuck in a risk-free business,” said Jeff Vyall, an energy analyst at Newberger Burman. He said that “nothing has changed” in the fundamental supply / demand picture for oil “warrants such a decline.”
The way investors are taking exit on tech stocks, they are betting on crude oil.
“Everyone’s trying to get out at once. There’s an avalanche of orders to sell,” Mizuho’s Yeager said.
Investors are also exiting the stock.
Weak air travel is a disappointing demand
The epidemic, along with the Great War between Russia and Saudi Arabia, affected oil prices this spring. US oil prices also changed negatively for the first time, down $ 40 – a barrel.
The good news for the oil bull is that the demand for gasoline has increased rapidly.
Road traffic has almost recovered and Bank of America expects global oil demand from road use to remain positive year-over-year over the next few months. This has helped raise national average gasoline prices to $ 2.22 per gallon from a low of $ 1.77 at the end of April.
That’s why Bank of America warned in a report late last week that it would take three years to “normalize” global oil demand.
Michael Tran, managing director of global energy strategy at RBC Capital Markets, said, “Demand for oil globally is really sluggish. All the low-hanging fruits of global oil recovery have already taken place.”
When will the crude be down?
Tran warned that the fundamentals in the oil market would likely “remain weak through a decline.”
So how much less can crude go?
Yawger estimates that crude will not be much less than $ 30 per barrel because that time OPEC will be forced to come to the rescue again.
“I don’t think we’re going to spring into the abyss again,” he said.