Oil crash spreads beyond expiring contract with WTI slumping 42%
The oil meltdown accelerated, with huge losses sweeping through markets as the world runs out of places to store unwanted crude and grapples with negative pricing.
West Texas Intermediate plunged below zero on Monday for the first time in history with the contract for May nearing expiration, leaving traders in a panic as they tried to avoid taking delivery of physical barrels. On Tuesday, the losses spread to the next month -- highlighting that a massive glut in the market is exacerbating the rout rather than any technical quirk.
The collapse of later contracts underscored the severity of the crisis. Storage tanks, pipelines and tankers are rapidly being overwhelmed by a vast oversupply caused by slumping fuel demand as countries are locked down to fight the coronavirus.
In the market for global benchmark Brent crude in London, the immediate contract was at its biggest discount, or contango, to the following one in data since 2008. U.S. marker WTI's June contract was halted three times early in New York to manage the volatility, CME Group Inc. said.
John Kilduff, a partner at Again Capital LLC, says that the situations that plagued the May contract will continue in to June. "There is no doubt in my mind about that," he said. "The conditions that generated the negative pricing for the May contract are going to persist throughout."
Also read: Oil Spirals Below Zero in 'Devastating Day' for Global Industry
"I didn't think we would ever see this," Ben Luckock, co-head of oil trading at Trafigura, said in a Bloomberg TV interview. "We have a distressed market and we are seeing unprecedented price moves and that is what we have to deal with at the moment." It's possible WTI for June also moves to negative prices, he said.
That contract for the U.S. benchmark dropped as much as 42% to $11.79 a barrel, before recovering slightly to $14.95 as of 10:53 a.m. in New York. The thinly traded May contract rallied to $3.94 a barrel. Brent crude slumped 21% to $20.21, having earlier dropped to as low as $18.10.
The collapse is reverberating across the oil industry, with prices trading below zero across America. WTI Midland in Texas -- a flagship marker for the U.S. shale industry -- was at -$13.13 a barrel, while crude in Alaska was at -$46.63.
There are signs that these stunningly low prices are here to stay as tanks across the globe fill up. Royal Vopak NV, the world's biggest independent storage company, said almost all of its space is sold.
Crude stockpiles at Cushing -- America's key storage hub and delivery point of the WTI contract -- have jumped 48% to almost 55 million barrels since the end of February. U.S. nationwide inventories are estimated to have increased another 14 million barrels last week, according to a Bloomberg survey.
Countries fighting the virus pandemic have been on lockdown for weeks, drastically cutting road and air travel and stopping most economic activity. Many governments are extending confinement measures, further ravaging demand.
It is forcing refineries from Asia to Europe and the U.S. to use far less crude. Portuguese processor Galp Energia SGPS SA said Tuesday it will suspend operations at its Sines refinery for a month as its storage tanks are nearly full.
The speed and scale of the crash has been so massive that it has left plans for unprecedented production cuts by OPEC and its allies completely ineffective. To make matters worse, the supply reductions only start from next month, and the current market continues to be awash with crude.
Saudi Arabia said it is ready to join OPEC+ for more measures to stabilize the oil market. Russia said that it is monitoring prices closely, but hasn't decided on Venezuela's call for an OPEC+ committee meeting.
"This is the kind of price that focuses minds in oil-producing nations, and minds are so focused they're probably telekinetic at this point, or at least bending spoons," said Kevin Book, head of research at ClearView Energy Partners.
