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IEA, OPEC Slash Oil Demand Outlook Amid “Headwinds” From Spreading Delta Variant

IEA, OPEC Slash Oil Demand Outlook Amid “Headwinds” From Spreading Delta Variant

The International Energy Agency and Goldman Sachs are both warning that global oil demand is facing headwinds due to the spread of the COVID-19 Delta variant: “Growth for the second half of 2021 has been downgraded more sharply, as new COVID-19 restrictions imposed in several major oil-consuming countries, particularly in Asia, look set to reduce mobility and oil use,” the IEA said in its monthly report.

“We now estimate that demand fell in July as the rapid spread of the COVID-19 Delta variant undermined deliveries in China, Indonesia, and other parts of Asia,” the IEA said. 

Since July, NYMEX West Texas Intermediate (WTI) futures have fallen at least 10% as the Delta variant spreads worldwide. Traders are worried renewed lockdowns and or stricter social distancing measures in China, Europe, and the US may continue to weigh on oil demand and result in lower prices.

The “recent rally has lost steam on concerns that a surge in Covid-19 cases from the Delta variant could derail the recovery just as more barrels hit the market,” the IEA said.

The agency said global oil demand “abruptly reversed course” last month, after surging by 3.8 million barrels a day in June, adding that it lowered consumption estimates for the second half of this year by 550,000 barrels a day.

However, the IEA projects in the last quarter of this year, the global economic recovery should regain steam as world fuel should reach an average of 98.9 million barrels a day.

Similar to IEA’s forecast is a report from Goldman Sachs’ Damien Courvalin, who told clients that “transient demand headwinds” have developed and there is “growing evidence of structural supply tailwinds.”

Courvalin already lowered his emerging market demand expectations last month due to the Delta spread but at the time “omitted” China from the downgrade.

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Has OPEC finally won the war against shale oil?

Has OPEC finally won the war against shale oil?

I have maintained for the past six years that a key goal of OPEC has been to so demoralize investors in shale oil that they stop sending money to the companies that drill for it. As I’ve written previously, I believe that OPEC’s contest with the shale oil industry is “part of a broader strategy meant to maximize Saudi revenues as production in the kingdom hovers at an all-time high over the next decade before beginning a decline.” It now appears that OPEC may have finally won its war against shale.

Investment in shale oil companies has finally collapsed—even as oil prices levitate. It has been a long time coming. The industry would like you to believe that it is now showing “restraint” in its capital spending. But, to use a dieting analogy, there is a big difference between watching what you eat and having your jaw wired shut—involuntarily in this case. The industry has experienced the equivalent of the latter in the capital markets.

What has amazed all of us who watched this battle play out is that OPEC didn’t win sooner. The relentless tolerance for losses among investors was beyond belief. And, when those investors returned in force after a brief vacation during the oil price bust in 2015, we skeptics grew concerned that rational thought had been eliminated from the universe.

Why did we think that? Because by that time the industry had already burned through hundreds of billions of investors’ dollars, dollars that merely subsidized petroleum consumers while enriching industry insiders. I am reminded of the joke about the business owner who explained that while he loses 5 cents on every sale, he makes it up in volume. Free cash flow numbers for the industry as a whole made it absolutely obvious that shale oil had been a money-loser for years. Why couldn’t investors see something that obvious?

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Brace For Shock At The Pump: WTI Surges Above $75 As OPEC+ Raises Output Less Than Expected

Brace For Shock At The Pump: WTI Surges Above $75 As OPEC+ Raises Output Less Than Expected

Brace for shock at the pump. WTI crude prices surged by over $2, rising more than 3% to $75.8/bbl…

… the highest since 2018…

… amid reports that ahead of the conclusion of today’s OPEC, JMMC and OPEC+ meetings, Saudi Arabia and Russia have agreed on a preliminary deal regarding raising oil output, one which will include a monthly oil output increase of less than 500k bpd to OPEC’s current holdback of 5.8 million barrels until December-2021, which is less than the market consensus of 500kbp/d. Reuters adds that OPEC+ is also likely to ease oil output cuts by 2 million bpd between August and December, which suggest that OPEC+ is weighing inflation risks in the short-term, however by year-end the market is expected to be in a deficit of over 3mmb/d, which is why most banks have projected oil to rise above $85 toward the end of the second half.

Additionally, local sources add that OPEC+ is currently debating extending the production deal to the end of 2022 (from the original April 2022), according to a delegate, which will lead to the further supply constraints and even higher prices.

While OPEC+ intentions should hardly be a surprise to the market, the fact that oil prices are only now spiking shows how far behind the curve algos and CTAs have been. Or as energy expert Art Berman puts it, “So much commentary about how OPEC doesn’t matter any more yet today so many tweets expressing frustration with OPEC for not increasing supply.”

The OPEC+ meeting is happening against a backdrop of tightening supply. Crude inventories in the U.S. are falling at the fastest rate in decades, while shale producers are remaining disciplined with their spending and won’t overwhelm OPEC, ConocoPhillips Chief Executive Officer Ryan Lance said on Wednesday…

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January Non-OPEC Oil Production Climbs Again

January Non-OPEC Oil Production Climbs Again

Below are a number of oil (C + C ) production charts for Non-OPEC countries created from data provided by the EIAʼs International Energy Statistics and updated to January 2021. Information from other sources such as OPEC, the STEO and country specific sites such as Russia, Norway and China is used to provide a short term outlook for future output and direction for a few countries and the world.

Non-OPEC production continued to climb from the May 2020 low of 45,272 kb/d. January’s output increased by 448 kb/d to 48,862 kb/d from December. The January increase was primarily driven by output increases from Brazil (147 kb/d) and China (164 kb/d). From May 2020 to January 2021, production increased by a total of 3,590 kb/d or an average of close to 450 kb/d/mth.

Using data from the April 2021 STEO, a projection for Non-OPEC output was made to December 2022 (red graph). Output is expected to reach 52,064 kb/d, which is lower than the previous high of December 2019, by close to 500 kb/d. February 2021 output is projected to drop by 1,534 kb/d due to the disruption caused by the major snow storm in the L48 U.S. states.

Ranking Production from NON-OPEC Countries

Above are listed the worldʼs 11th largest Non-OPEC producers. They produced 83.6% of the Non-OPEC output in January. On a YoY basis, Non-OPEC production decreased by 3,601 kb/d while on a MoM basis, production increased by 448 kb/d to 48,862 kb/d. World YoY output is down by 6,906 kb/d. As noted above, the January increase was primarily driven by output increases from Brazil (147 kb/d), China (164 kb/d) and Russia (111 kb/d), countries with the largest monthly increases.

The EIA reported Brazilʼs January production increased by 147 kb/d to 2,873 kb/d.

According to this source February’s output dropped by 8% from January to 2,730 kb/d and then recovered to 2,844 kb/d in March, according to this source (Red Markers).

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OPEC Update, March 2021

OPEC Update, March 2021

The OPEC Monthly Oil Market Report for March 2021 was published this past week. The last month reported in each of the charts that follow is February 2021 and output reported for OPEC nations is crude oil output in thousands of barrels per day (kb/d). The numbers at the left side of the graphs show February 2021 output (and in some cases the trailing 12 month average output).

Figure 1

Figure 2

OPEC crude output decreased by 647 kb/d in February 2021, total OPEC crude output for January 2021 was not revised from last month’s report. Most of the decrease in OPEC output was due to a cutback in Saudi Arabia’s output by 930 kb/d from January to February 2021.

Figure 3
Figure 4
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Figure 6
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Figure 12
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Dennis Coyne, OPEC, oil , oil production, peak oil barrel

Happy Days At The Gas Pump Are Over As Prices Soar 

Happy Days At The Gas Pump Are Over As Prices Soar 

When the virus pandemic first hit early last year, Americans were locked down in their homes as gasoline demand plunged and prices crashed. Last April, the nationwide average for gasoline was around $2. According to AAA, prices are surging nationwide, up 32 cents in the previous month to $2.796 for regular.

On Monday, regular gasoline in Los Angeles County rose for the 27th consecutive day and 47th time in 48 days, increasing to $3.81, the highest since Dec. 3, 2019. Average prices for crude products in the metro area have been on a tear, resulting in a price shock for many consumers who are still battling food and housing insecurities, along with job loss as they wait for the next round of stimulus checks.

Happy times at the pump are over as crude product prices continue to rise. 

GasBuddy analyst Patrick DeHaan told Fox News that one reason for the jump in prices is due to increased demand. Still, more importantly, he said the Organization of the Petroleum Exporting Countries (OPEC) “is not opening the spigot.”

Last week, OPEC leaders maintained production cuts for all countries except Russia and Khazakstan. The news caused West Texas Intermediate and Brent to surge.

OPEC’s decision last week inspired Goldman’s Damien Courvalin to raise his Brent forecast by $5/bbl, to $75/bbl in 2Q and $80/bbl in 3Q21: “This increase in our price forecast reflects stronger time spreads, with our updated inventory path consistent with $5/bbl additional backwardation over the next six months relative to our prior forecast.”

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Peak oil in Africa part1: OPEC quotas Jan 2021

Peak oil in Africa part1: OPEC quotas Jan 2021

We examine whether OPEC’s quotas for its African members are actually on the production decline path of these countries.

OPEC’s quota levels can be found here:
https://www.opec.org/opec_web/static_files_project/media/downloads/Voluntary%20Production%20Levels.pdf

At present 7 oil producing countries in Africa are members of OPEC:

Algeria, Nigeria, Libya, Angola (2007), Gabon (2016), Equatorial Guinea (2017) and Congo Brazzaville (2018) https://www.opec.org/opec_web/en/about_us/25.htm

Historic peaks

Fig 1a: African countries which joined OPEC

The stacking order in the above graph is important for understanding the history. We start with Algeria at the bottom because this country seems to have the most reliable production. Next in the stack is Nigeria which shaped the November 2005 peak. Then Libya with an erratic production profile after the 17th February Revolution in 2011. Both Algeria and Libya were still growing when Nigeria peaked:

Fig 1b: OPEC w/o Angola peaked in Nov 2005 at 5,536 kb/d

OPEC then took in Angola in 2007 to overcome this embarrassing situation, but Angola itself also approached its peak a year later, in 2008, which shaped the common peak of 4 countries in Nov 2007 – Mar 2008 at 7.1 mb/d. The dotted lines in Fig 1a show production including Angola and 3 other countries before joining OPEC.

Trendlines

Fig 2: Algeria crude oil production

Algerian crude oil production peaked in June 2008. A trend line since then points to 950 kb/ for March 2021. Production between August and December 2020 was around 860 kb/d, near to the quota. The reference is approximately equivalent to the pre-Covid average since 2016.

Fig 3: Angola crude oil production (EIA data minus 3.6% condensate)

Angolan crude oil production peaked in December 2008. A trend line starting in July 2016 (when there was a kink in the production trend) points to 1,230 kb/ for March 2021. Production in December 2020 has dropped to around 1,170 kb/d, below the quota. The reference is the production level in 2018.

Fig 4: Nigeria crude oil production

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IHS Markit: Oil Demand Won’t Fully Recover Until 2022

IHS Markit: Oil Demand Won’t Fully Recover Until 2022

Global oil demand will likely take another year or so to return to pre-pandemic levels—by late 2021 or early 2022, energy expert and IHS Markit vice chairman Daniel Yergin told Al Arabiya English in a video interview on Monday.

Yergin’s expectations for oil demand are roughly in line with the forecasts by the International Energy Agency (IEA) and OPEC, which don’t expect annual oil demand to return to the pre-COVID levels next year, despite the projected rise compared to this year’s slump.

Continued low demand for jet fuel will account for 80 percent of next year’s 3.1-million-bpd gap in oil demand compared to pre-pandemic levels, the IEA said in its monthly Oil Market Report earlier this month. OPEC also revised down its oil demand projections for this year and next in its Monthly Oil Market Report for December, expecting 2021 oil demand at 95.89 million bpd, down 410,000 bpd from its projection of 96.3 million bpd from November.

IHS Markit’s Yergin doesn’t see the biggest disruption on the oil market as either bringing forward or delaying peak oil demand.

“At the end of the day, it won’t have much impact on peak oil demand, which I still think will be around 2030 or so,” Yergin told Al Arabiya English.

The Pulitzer-Prize winning energy author also discussed the U.S. shale patch and the chances of it returning to the rapid growth in production in the years just before the 2020 price crash.

“Let me give you a very simple answer, the answer is no,” Yergin told Al Arabiya English when asked if U.S. oil production could return to 1.5-million-bpd annual growth.

According to IHS Markit, shale production will stay relatively unchanged at around 11 million bpd until late 2021, before it starts rising, but it will increase at a much more moderate pace.

“So that 1.5 million barrels per day, that two million barrels per day that was so disruptive for the oil market, that’s history,” Yergin told Al Arabiya English.

Saudi Arabia Refuses To Learn From Its Two Failed Oil Price Wars

Saudi Arabia Refuses To Learn From Its Two Failed Oil Price Wars

Having failed to achieve the slightest semblance of success in the two oil price wars that it started – the first running from 2014 to 2016, and the second running from the beginning of March to effectively the end of April this year – it might be assumed that key lessons might have been learned by the Saudis on the perils of engaging in such wars again. Judging from various statements last week, though, Saudi Arabia has learned nothing and may well launch exactly the same type of oil price war in exactly the same way as it has done twice before, inevitably losing again with exactly the same catastrophic effects on it and its fellow OPEC members. At the very heart of Saudi Arabia’s problem is the collective self-delusion of those at the top of its government regarding the Kingdom’s key figures relating to its oil industry that underpins the entire regime. These delusions are apparently not discouraged by any of the senior foreign advisers who make enormous fees and trading profits for their banks from Saudi Arabia’s various follies, most notably oil price wars. It is, in the truest sense of the phrase, a perfect example of ‘The Emperor’s New Clothes’, although in this case, it does not just pertain to Crown Prince Mohammed bin Salman (MbS) but to all of the senior figures connected to Saudi Arabia’s oil sector. One of the most obvious examples of this is the chief executive officer of Saudi Arabia’s flagship hydrocarbons company, Saudi Aramco (Aramco), Amin Nasser, who said last week – bewilderingly for those who know even a modicum about the global oil markets – that Aramco is to go ahead with plans to increase its maximum sustained capacity (MSC) to 13 million barrels per day (bpd) from 12.1 million bpd.

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US To Remove Patriot Missile Protection From Saudi Arabia Amid Oilpocalypse

US To Remove Patriot Missile Protection From Saudi Arabia Amid Oilpocalypse

Petrodollar panic?

As tensions between OPEC (cough – the Saudis – cough) and Washington rise over the supply (and price) of oil globally amid a pandemic-driven demand collapse, it would appears President Trump may have just gone ‘nuclear’.

“…there will be blood.”

The Wall Street Journal reports that The U.S. is removing Patriot anti-missile systems from Saudi Arabia and is considering reductions to other military capabilities – marking the end, for now, of a large-scale military buildup to counter Iran, according to U.S. officials.

As a reminder, OilPrice.com’s Simon Watkins warned last week that President Donald Trump was considering all options available to him to make the Saudis pay for the oil price war as the crash that followed has done significant damage to the U.S. oil industry.

With last month having seen the indignity of the principal U.S. oil benchmark, West Texas Intermediate (WTI), having fallen into negative pricing territory, U.S. President Donald Trump is considering all options available to him to make the Saudis pay for the oil price war that it started, according to senior figures close to the Presidential Administration spoken to by OilPrice.com last week. It is not just the likelihood that exactly the same price action will occur to each front-month WTI futures contract just before expiry until major new oil production cuts come from OPEC+ that incenses the U.S. nor the economic damage that is being done to its shale oil sector but also it is the fact that Saudi is widely seen in Washington as having betrayed the long-standing relationship between the two countries. Right now, many senior members on Trump’s closest advisory circle want the Saudis to pay for its actions, in every way, OilPrice.com understands.

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Singapore Oil Trading Giant On Verge Of Collapse After Banks Freeze Credit Lines

Singapore Oil Trading Giant On Verge Of Collapse After Banks Freeze Credit Lines

Back in the second half of 2015, shortly after Saudi Arabia unleashed the (first) OPEC disintegration by flooding the market with oil in hopes of killing US shale (so deja vu… only back then it took it about two years for it to realize its low production costs are no match for the US junk bond market) and when China’s economy briefly collapsed forcing Beijing to devalue its currency and trigger a violent plunge in commodity prices around the globe (so deja vu… only back then the Shanghai Accord of Jan 2016 restored order to the world), traders were looking for ways to short the chaos and one of the favorite trades was to bet on the collapse of commodity merchants such as Glencore, Vitol, Trafigura and Mercuria, whose fates were closely interwoven with the prices of the commodities they traded. As a result, Glencore’s stock price plunged and its CDS soared amid fears the commodity crash cascade would lead to a default wave among anyone with commodity exposure.

Fast forward 5 years when the biggest commodity crash in generations, one which has sent the price of oil tumbling to levels not seen since George H.W. Bush was invading Middle Eastern nations, and… nothing: while the Glencores of the world have indeed dropped, their valuations are nowhere near the late 2015 lows even as the prices of several key commodities have rarely been lower.

That might be changing, however, because the longer global economic activity fails to rebound and the longer commodity prices remain at their current depressed levels, the more the global liquidity crisis will transform into a solvency crisis, hitting some of the most prominent commodity traders in the world… such as Singapore’s iconic oil trader Hin Leong Trading, which according to Bloomberg has appointed advisers to help in talks with banks as some of them freeze credit lines to the firm.

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In Late Thriller, OPEC Production Cut Deal Collapses After Mexico Gives Crown Prince The Finger

In Late Thriller, OPEC Production Cut Deal Collapses After Mexico Gives Crown Prince The Finger

Earlier today we reported that following a dramatic objection to the OPEC+ production cut which was agreed upon by Russia and Saudi Arabia (but few other OPEC members), Mexico had initially threatened to quit OPEC as it refused to comply with the imposed 23% cut forced on all members, but less than an hour later the southern US neighbor reportedly had changed its mind as Reuters reported that Mexico had in fact agreed to the OPEC+ production cut deal after all.

Well, scratch all that because it appears the Reuters “news” was fake, sourced from some conflicted Saudi minister who wanted to put Mexico in a position where it had no choice but to accept the reality that had been imposed upon it. Unfortunately for the Saudis, this “plan” was laughable and late on Thursday, Mexico logged off the OPEC+ alliance’s videoconference emergency meeting after nine hours of talks Thursday, without agreeing to the landmark 10 million b/d production cut accord that members were hoping could stem a bruising rout in oil prices caused by the coronavirus pandemic and send the price of oil surging, S&P Global Platts reported, whose sources we can now confirm are far more credible than those of Reuters.

The rest of the coalition, led by Saudi Arabia and Russia, were in discussions over how to proceed, with many ministers angry over the potential blow-up of the deal.  The coalition will likely try to convince Mexico again Friday at a G20 energy ministerial that was originally scheduled to seek the participation of the US, Canada, Brazil and other key producers outside of OPEC+ to join its efforts.

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The OPEC Meeting Could Send Oil Prices Crashing Below $10

The OPEC Meeting Could Send Oil Prices Crashing Below $10

OPEC Meeting

The current optimism of analysts and the media that an end to the ongoing OPEC+ oil price spat is near is entirely unjustified. The ongoing oil market volatility, the battle between leading producers for market share, the logistical impossibility of enforcing U.S. production cuts, and the continued demand destruction caused by COVID-19 are not issues that can be solved by an OPEC meeting. Immediately after Trump’s latest OPEC twitter offensive, Saudi Arabia and Russia came out with critical statements about the impact and influence of the US president on the matter. While Putin and Mohammed bin Salman are reluctant to bash Trump, the real power when it comes to the oil market does not lie with the U.S. President. The tweet by Trumpclaiming that MBS and Putin would agree to a 10+ million bpd production cut shows not only his overestimation of his own power over the two countries, but also shows a lack of knowledge about the underlying market fundamentals and the current demand destruction worldwide.  As former US president George W. Bush stated during his election campaign, which did not end well as we know, “it’s the economy stupid” that matters in the end. Trump’s tweets and general approach to this matter suggests he and his administration are out of touch with reality. Even if a Saudi-Russian combination would cut 10 million bpd, the oil price reaction would be minimal and very short-lived. At present, leading oil market experts such as Vitol, Trafigura and Goldman Sachs are warning of a total demand destruction of 20 million bpd or more.

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The Inevitable Outcome Of The Oil Price War

The Inevitable Outcome Of The Oil Price War

Putin MBS

One might reasonably posit that when Crown Prince Mohammed bin Salman (MbS) signalled that Saudi Arabia was once again going to produce oil to the maximum to crash oil prices in a full-scale oil price war, Russian President Vladimir Putin probably fell off the horse he was riding bare-chested somewhere in Siberia because he was laughing so much. There is a phrase in Russian intelligence circles for clueless people that are ruthlessly used without their knowledge in covert operations, which is ‘a useful idiot’, and it is hard to think of anyone more ‘useful’ in this context to the Russians than whoever came up with Saudi’s latest ‘plan’. Whichever way the oil price war pans out, Russia wins.

In purely basic oil economics terms, Russia has a budget breakeven price of US$40 per barrel of Brent this year: Saudi’s is US$84. Russia can produce over 11 million barrels per day (mbpd) of oil without figuratively breaking sweat; Saudi’s average from 1973 to right now is just over 8 mbpd. Russia’s major oil producer, Rosneft, has been begging President Putin to allow it to produce and sell more oil since the OPEC+ arrangement was first agreed in December 2016; Saudi’s major oil producer, Aramco, only suffers value-destruction in such a scenario. This includes for those people who were sufficiently trusting of MbS to buy shares in Aramco’s recent IPO. Russia can cope with oil prices as low as US$25 per barrel from a budget and foreign asset reserves perspective for up to 10 years; Saudi can manage 2 years at most.

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Oil Plunges To 17 Year Low As One Bank Predicts Negative Prices

Oil Plunges To 17 Year Low As One Bank Predicts Negative Prices

Late on Tuesday, WTI plunged as low as $26.20 taking out the lows from the 2015/2016 oil recession, and sending it to a level last seen when US president was George W. Bush, people were listening to Get Busy by Sean Paul and Dogville was one of the most popular movies: May 2003.

While there was no immediately clear catalyst, earlier in the day, Goldman’s commodities team published a report in which they discuss the need for commodity prices to drop below cash costs to generate supply curtailments as demand losses across the complex are now unprecedented, as Goldman now believes oil use is down an unprecedented 8 million b/d: 

Large commitments from core-OPEC for April/May deliveries pushes the net supply increase near c.3m b/d, which, when combined with the demand losses, results in an April/May surplus of 7mb/d, which will likely breach system capacity during 2Q20.

As Goldman’s Jeffrey Currie wrote, “the system strain creates a physical end, even though when COVID-19 will end is unknown, pushing our forecasts to shut-in economics. We now forecast 3m GSCI -25%.” As a result of price wars in oil and gas and uncertain policy responses in bulks and base metals, all a direct result of the sharp fall in demand resulting from the COVID-19 containment measures, Goldman has cut its 2Q Brent price target to just $20/bbl from $30/bbl. 

But that was not the worst of it for what little is left of oil bulls.

Outdoing not only Goldman, but virtually every single bearish oil analyst in existence, Mizuho’s Paul Sankey not only estimated that Goldman is too optimistic by half, calculating a whopping 15MM b/d in oversupply currently, but that crude prices could go negative – yes, as in you would be paid to take delivery – as Saudi and Russian barrels enter the market. 

…click on the above link to read the rest of the article…

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