A month ago, any analyst suggesting oil could hit $200 per barrel would've been laughed out of the room. Now? It's a legitimate possibility, and the math behind it is terrifying.
Here's the situation: Middle East oil exports have collapsed. In February, the region was shipping 25-26 million barrels per day. By mid-March, that number dropped to somewhere between 7.5 and 9.7 million barrels daily, depending on whose data you trust. Either way, that's a two-thirds drop in a matter of weeks.
The production cuts are even worse. Iraq has slashed output by 2.9 million barrels per day. Saudi Arabia cut 2-2.5 million. The UAE cut 1.5 million. Kuwait cut 1.3 million. That's over 7 million barrels daily gone from global supply—and the International Energy Agency estimates total shut-in production could be as high as 10 million barrels per day.
For context, the IEA had predicted the oil market would be in a surplus of 3.7 million barrels daily this year. Not only is that surplus completely gone, we're now facing a severe shortage with no physical oil to meet demand.
Why are Middle East producers cutting so aggressively? Storage capacity is maxed out. Some of those "export" barrels aren't actually going to customers—they're being parked on tankers for storage because there's nowhere else to put them. And you can't just keep pumping oil indefinitely when you have no storage and your export routes are shut down.
Greg Newman, CEO of Onyx Capital Group, told CNBC we're already in the "$150 range" and that $200 oil isn't ridiculous given the supply situation. The Middle Eastern benchmark has already hit $150 per barrel.
Chris Watling, chief market strategist at Longview Economics, went even further:
