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Traders fled the May contract ahead of Tuesday\u2019s expiration. Industrial and economic activity is grinding to a halt as governments around the globe extend shutdowns due to the swift spread of the coronavirus. Oil has faced its own knock-on effects with a market massively oversupplied and nowhere to put physical barrels. Despite the unprecedented output deal by OPEC and allied members a week ago to curb supply, it\u2019s become too little too late in the face of pandemic lockdowns reducing global crude demand by about a third.<\/p>\n
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\u201cThere is little to prevent the physical market from the further acute downside path over the near term,\u201d said Michael Tran, managing director of global energy strategy at RBC Capital Markets. \u201cRefiners are rejecting barrels at a historic pace and with U.S. storage levels sprinting to the brim, market forces will inflict further pain until either we hit rock bottom, or COVID clears, whichever comes first, but it looks like the former.\u201d<\/p>\n
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Since the start of the year, oil prices have fallen by more than 80%, or $50 a barrel, after the compounding impacts of the coronavirus and a breakdown in the original OPEC+ agreement. With no end in sight, and producers around the world continuing to pump, that\u2019s causing a fire-sale among traders who don\u2019t have access to storage.<\/p>\n
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There are signs of weakness everywhere.\u00a0Buyers in Texas\u00a0are offering as little as $2 a barrel for some oil streams, raising the possibility that producers may soon have to pay to have crude taken off their hands. The spread between the nearest two contracts for the U.S. benchmark has fallen to its weakest level on record. In Asia, bankers are increasingly\u00a0reluctant\u00a0to give commodity traders the credit to survive as lenders grow ever more fearful about the risk of a catastrophic default.<\/p>\n
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In New York, West Texas Intermediate dropped by a staggering 43%, the most since the contract began trading in 1983, to $10.34 a barrel, the weakest level since 1986. The plunge was exaggerated as the May futures contract expires on Tuesday. The June contract fell 8.8% to $22.83 a barrel at 10:46 a.m. local time. Brent declined 5.1% to $26.64.<\/p>\n
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The S&P\u2019s 500 Energy Index has lost nearly 45% since the start of the year as producers and refiners were pummeled by the oil plunge.<\/p>\n
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Crude stockpiles at Cushing \u2014 America\u2019s key storage hub and delivery point of the West Texas Intermediate contract \u2014 have jumped 48% to almost 55 million barrels since the end of February. The hub had\u00a0working storage capacity\u00a0of 76 million as of Sept. 30, according to the Energy Information Administration.<\/p>\n
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Despite the weakness in headline prices, retail investors are continuing to plow money back into oil futures. The U.S. Oil Fund ETF saw a record $552 million come in on Friday, taking total inflows last week to $1.6 billion.<\/p>\n
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The price collapse is reverberating across the oil industry. Crude explorers shut down 13% of the American drilling fleet last week. While production cuts in the country are gaining pace, it isn\u2019t happening quickly enough to avoid storage filling to maximum levels, said Paul Horsnell, head of commodities at Standard Chartered.<\/p>\n
<\/p>\n
\u201dThe background psychology right now is just massively bearish,\u201d Michael Lynch, president of Strategic Energy & Economic Research Inc said in a phone interview. \u201cPeople are concerned that we are going to see so much build up of inventory that it\u2019s going to be very difficult to fix in the near term and there is going to be a lot distressed cargoes on the market. People are trying to get rid of the oil and there are no buyers.\u201d<\/p>\n
<\/p>\n
\u2013With assistance from\u00a0Javier Blas\u00a0and\u00a0Elizabeth Low.<\/p>\n
gCaptain<\/p>\n","protected":false},"excerpt":{"rendered":"
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