Is $15 Crude Oil in the Cards?

On Wednesday. March 4th -April Crude Oil futures closed at 46.78, which left it down -22% on the year… not a good look.

Monday, March 9th at 12:30 in the morning, Crude Oil was down -41.6% from that ugly close just 2 business days earlier, putting in a low at $27.34 !!  Wow. That is a Black Monday type of outlier event:

While some were watching in horror, others on the short side of the trade were watching in glee (although likely still a little bit of horror). And the question now is how much lower can it go? On cue, Brett Belote of Cayler Capital had his oil commentary out last night, asking if $15 Crude Oil was in the cards. Here’s the highlights from his piece:

Russia broke the oil market!  Russia and the Saudi’s have entered into a dangerous game of chicken with each other.  Russia is determined to punish US Oil Producer’s while the Saudi’s are attempting to force OPEC+ back in line.  To simplify, Russia would not comply with OPEC+ to extend cuts and possibly deepen them, so in retaliation, the Saudi’s lowered its official selling price (OSP).  This OSP affects about 14 million barrels per day (mb/d) for various oil grades and locations.  See below chart for an idea of just how monumental and gigantic the OSP cut was. 

Saudi OSP

The Saudi’s also followed this with a pledge to ramp up production to over 12 million barrels in April (as of last OPEC MOMR Report, they produced 9.7 mb/d) a jump in production of over 2.3 mb/d.  These moves are a clear signal that we have entered into an ‘every country for themselves’ regime shift.  Each country has its own complicated geopolitical and monetary reason for making the move they did, but the fact remains, oil is going lower as a result.  

Lastly, we believe that Covid 19 is the catalyst to send the global economy into a recession.  We are just starting to see supply chains breaking down and are beginning to realize how many small nuanced parts in our economy China produces.  What happens when the actual economic data starts getting published?  How are earnings going to look this year?  What monetary weapons do we have to fight this?  Will there be quarantines and travel bans in the US?  All bearish macro and oil events. 

In China alone, the Covid 19 demand shock has led to 60 million barrels of oil going to storage in February.   This 60 million figure does not even capture the pullback in global travel that occurred over the last two weeks of February or the first week of March so far around the world.  I anticipate that in the coming weeks, we will see massive revisions lower in global demand forecasts from banks and analysts.  Stockpiles are going to build for most of 2020, and there are some areas where we may be close to filling up max storage.

At Cayler Capital, our models anticipate prices moves and trade the fundamentals of Covid 19, OPEC, and the looming demand shock.  We believe that oil will break the low of 2016 and possibly test the teens.  We don’t think Russia or the Saudi’s are going to back down and will continue to oversupply the market in the near term.  By summer, we should have a clearer picture of the demand side and will know the extent of the destruction (newsflash: it’s going to be bad).  There will be a rash of bankruptcies in the Shale patch followed by turmoil in the middle east which will slow the stock builds but not stop them.

For more on Cayler and other energy focused funds we work with, call us at (855) 726 – 0060, or email

Good luck out there – it’s starting to remind us of 2008!

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