ASX energy stocks are leading the rebound in the S&P/ASX 200 Index (Index:^AXJO) this morning, but don't get too comfortable as the oil price may be heading back to negative territory again.
This time the price inversion could be worse! Veteran oil analyst from Mizuho Bank, Paul Sankey, told Bloomberg that the oil price could "quite possibly" fall to minus US$100 a barrel.
This effectively means that oil producers will pay that amount to customers to take crude off their hands.
ASX oil stocks rebound
But investors in ASX oil-exposed stocks aren't too flustered by the news. The Santos Ltd (ASX: STO) share price surged 7.3% to $4.28 in late morning trade after the company released its reassuring quarterly report.
As I wrote on Tuesday when the WTI futures oil price for the May contract plunged to -US$37.63 for the first time in history, it won't make ASX energy shares worthless.
Other major shares in the energy sector joined in today's party. The Oil Search Limited (ASX: OSH) share price jumped 3.1% to $2.49 and Woodside Petroleum Limited (ASX: WPL) share price advanced 1.7% to $19.94.
A deeper drop into the abyss?
But the sector isn't out of the woods yet. If the futures price for June were to drop to a shocking negative US$100 a barrel, it will send ASX investors running for the hills.
The bearish outlook from some analysts is based on the anticipated "tank tops" event – an industry term to refer to storage tanks reaching capacity.
This may be already happening. While there is still some storage capacity in the system, traders say these have already been booked.
There are always those who are well placed to profit from any crisis, and this time it appears to be those with spare tanks to keep crude.
Oil price could be determined by storage costs
Rental costs at major oil hubs have already jumped by 50% to 100% in late March, according to Reuters. Storage prices in Europe used to be around 2 euros per cubic meter per month but that has doubled.
Over in the US, the price had more than doubled at Cushing, Oklahoma, the delivery point for WTI oil contracts. The rate jumped to US50 cents a barrel in late March from US20 cents. I am pretty sure the rate continued to climb since.
Desperate measures
The desperation to store crude can be seen in rentals of frac tanks. These are transportable tanks that are commonly used to carry chemicals. Each frac tank can hold around 500 barrels of oil and the daily rental rate stands at around US$20 a tank, up by a third. This works out to around US$1.20 a barrel per month.
This may not sound like much, but if frac tanks become the "marginal solution", the storage cost increase will jump 140% over the already elevated rent at Cushing! And this assumes you can find enough frac tanks.
You can bet the price is only going in one direction. This is very significant for those trying to guess how deep into negative territory oil prices can slip.
