Oil hits two-decade lows on low demand, storage woes

LONDON/NEW YORK (Reuters) – June oil futures plunged on Tuesday, as the panic that sent U.S. May futures to below minus $40 per barrel on Monday bled further into the markets due to worries about the coronavirus pandemic’s effect on fuel demand in a market overrun by supply.

U.S. crude futures slumped in dramatic fashion on Monday, with the front-month May contract, which expires Tuesday, falling to close at negative-$37.63 a barrel. That steep fall came as traders scrambled to get out of that contract to avoid taking delivery of barrels for fear of nowhere to store the oil and lack of customers who want to buy it.

While that trade is somewhat anomalous, the steep decline in both Brent and U.S. futures expiring in June shows that the market is worried that the overwhelming supply and weak demand will leave barrels without a home for weeks to come.

The June contract for U.S. West Texas Intermediate (WTI) crude CLc2 dropped 27% to $14.89 a barrel by 11:00 a.m. ET (1500 GMT), after hitting $11.79, its lowest since 1999.

Brent for June delivery LCOc1, the front-month contract, fell to as low as $18.10, its lowest since November 2001. It was down 21% at $20.05.

WTI for May delivery CLc1, meanwhile, rebounded from its negative condition. It was trading at $3.80 a barrel, as most of the open positions in that contract coming into this week were settled on Monday.

“With available storage in short supply, nobody wanted to hold a contract about to come due,” Konstantinos Venetis, senior economist at TS Lombard, an independent investment research provider, said in a note. “U.S. shale producers are fast approaching the point where they will be forced to shut down operations.”

The main U.S. storage hub in Cushing, Oklahoma, the delivery point for WTI is expected to be full within weeks.

U.S. President Donald Trump on Tuesday called on the government to make funds available to the U.S. oil and gas industry, calling Monday’s crash a “financial squeeze” and mooting a halt to Saudi imports.

The Organization of the Petroleum Exporting Countries and its allies, including Russia, have announced sweeping cuts in production, amounting to almost 10% of global supplies. But with economies virtually at a standstill due to coronavirus lockdowns, demand has dropped as much as 30%.

“With no more generous production cuts announced and as the last remaining storage facilities get filled to the top with oil, we can expect to see such huge swings in oil prices from now on,” Louise Dickson of consultancy Rystad Energy said.

“The mild daily changes in the oil price that we were used to some months ago may now become luxuries of another era.”

Kremlin spokesman Dmitry Peskov said leading global oil producers could hold talks again to discuss their output deal further if needed.

Top oil exporter and de facto OPEC leader Saudi Arabia said it was ready to take extra measures to stabilise oil markets along with other producers.

U.S. crude inventories were expected to rise by about 16.1 million barrels in the week to April 17 after posting the biggest one-week build in history, five analysts polled by Reuters found. [EIA/S]

The American Petroleum Institute is set to release its data at 4:30 p.m. (2030 GMT) on Tuesday.