US Crude Oil Prices US: WTI crude price sinks 99%, hits $ 0.15 a barrel with little storage, weak demand
Physical demand for crude oil has dried, creating global oversupply as billions of people stay home to slow the spread of the new coronavirus.
The US WTI contract. USA May fell $ 17.37, or 99%, to $ 0.15 a barrel at 1.50 PM EDT after hitting a record low of $ 2.26. Brent fell $ 1.76, or 6.3%, to $ 26.32 per barrel.
The June WTI contract is more actively trading at a much higher level of $ 22.25 a barrel. The spread between May and June was more than $ 19, the widest in the history of the two closest monthly contracts. Investors pulled out of the May contract before it expired on Monday due to lack of demand for real oil.
When a futures contract expires, traders must decide whether to accept the oil delivery or move their positions to another futures contract for a later month. This process is generally relatively straightforward, but this time, there are very few counterparties that will buy from investors and receive oil. Storage is rapidly filling at Cushing in Oklahoma, which is where the crude is delivered.
“There is no offer for the May WTI as there is no buyer and we have yet to see a significant reduction in supply in Cushing to make up for it,” said Scott Shelton, energy specialist at United ICAP.
Refineries are processing far less crude than normal, so hundreds of millions of barrels have entered storage facilities worldwide. Merchants have hired ships to anchor them and fill them with excess oil. A record 160 million barrels is found in tankers worldwide.
US crude oil reserves at Cushing rose 9% in the week to April 17, totaling about 61 million barrels, market analysts said, citing a Monday report from Genscape. “The warehouse is too full for speculators to buy this contract and the refineries are operating at low levels because we have not lifted requests to stay home in most states,” said Phil Flynn, analyst at Price Futures Group in Chicago.
“There is little hope that things will change in 24 hours.” Many investors may have been duped by what appeared to be a very low oil price and did not consider the monthly maturity of futures contracts, Commerzbank analyst Carsten Fritsch said.
Prices have been under pressure for weeks with the coronavirus outbreak hitting demand, while Saudi Arabia and Russia fought a price war and pumped more. The two sides agreed more than a week ago to cut supply by 9.7 million bpd, but that will not quickly reduce global excess. Brent oil prices have collapsed around 60% since the beginning of the year, while US crude oil futures have fallen around 95%, to levels well below the equilibrium costs necessary for many oil shale drillers. This has led to drilling stops and drastic cost cuts.
MORE SPARKS DATA GLOBAL ECONOMIC CONCERNS
Weak global economic data also put pressure on prices. The German economy is in a severe recession and the recovery is unlikely to be swift as coronavirus-related restrictions could remain in place for an extended period, the Bundesbank said. Japanese exports declined the most in nearly four years in March as shipments to the United States, including cars, fell at their fastest pace since 2011. Mood in other markets was also cautious as the first quarter earnings season.
Analysts expect STOXX 600 companies to post a 22% drop in earnings, which would represent the biggest decline since the 2008 global financial crisis, IBES data from Refinitiv showed. Halliburton Co, which generates most of its oil business in North America, teamed up with its biggest rival, Schlumberger, to receive first-quarter impairment impacts and cast a bleak outlook for North America.
Canada, the world’s fourth largest oil producer, has started to slow production, but analysts say the biggest cuts are yet to come. Russia’s energy ministry has told national oil producers to cut oil production by about 20% from their February average levels, two industry sources told Reuters, which would bring Moscow in line with its commitment under a global agreement.