The spectacular collapse in oil markets is showing no signs of easing, as the coronavirus crisis slashes demand and producers run out of places to store all their excess barrels.
US oil prices plunged more than 28% to nearly $13 per barrel on Monday, their lowest level since 1999.
The selloff can be attributed in part to market mechanics. The May futures contract for West Texas International, the US benchmark, is about to expire. Most investors are already focusing on the June contract, thinning out trading volume and feeding volatility, UBS analyst Giovanni Staunovo told me.
The June futures contract for WTI is trading close to $22 per barrel, but that’s still more than 10% down on the day. Brent crude futures, the global benchmark, fell 3.8% Monday to $27 per barrel.
The extreme pressure on the WTI contract for May highlights ongoing concerns about the supply and demand dynamics plaguing the oil market.
“No one in America wants oil in the short term,” Jeffrey Halley of Oanda told clients on Monday.
Saudi Arabia, Russia and other producers tried to prop up prices with a deal last week to slash production by 9.7 million barrels per day in May and June, the deepest cut ever negotiated. But that isn’t expected to soak up the supply glut caused by evaporating demand for energy.
Oil storage facilities are still at risk of overflowing, raising the chance that some oil producers in the United States and Canada could start paying customers to take crude off their hands, according to Staunovo.
Investors are particularly worried about storage reaching capacity in Cushing, Oklahoma, the main US hub.
Rystad Energy, a consultancy, forecasts that US commercial crude stocks will hit all-time highs by the end of April and will continue rising into May.