The spectacular collapse in oil markets is showing no signs of easing, as the coronavirus crisis saps demand and producers run out of places to store all their excess barrels of crude.
What’s happening: US oil prices plunged 78%, falling as low as $4.04 per barrel Monday. That’s the lowest level since NYMEX opened oil futures trading in 1983.
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 just above $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.
U.S. crude prices plunged to their lowest level in history as traders continue to fret over a slump in demand due to the coronavirus pandemic.
The price of the nearest oil futures contract, which expires Tuesday, was the hardest hit, detaching from later month futures contracts with a drop of more than 90%. This suggests that some believe there could be a recovery later in the year.
West Texas Intermediate crude for May delivery tanked 98%, or $18.04, to trade at 0.01 cents per barrel, its lowest level on record. Meanwhile international benchmark, Brent crude, which has already rolled to the June contract, traded 6.2% lower at $26.35 per barrel. The June WTI contract, which expires on May 19, fell about 10% to $22.54 per barrel. The July contract was roughly 5% lower at $28 per barrel.