Another bad day for oil with a slide that started in Asia in early trading, ending in New York at settlement for West Texas Intermediate (WTI) crude with a near 25% slump.
In contrast, Brent futures ‘only’ lost just on 7%, but dipped under $US20 a barrel.
A week ago WTI had slumped into negative pricing, ending at an impossible price of minus $US37 a barrel. Brent also slid and while there was a slow recovery last week, prices for both crude futures contracts ended with massive losses.
For WTI those losses continued on Monday thanks to growing concern about a shortage of storage in the US and fears that the fall in demand will not be stopped by the early moves to re-open economies in some US states and in countries like Spain, New Zealand, and China.
June WTI crude lost $US4.16, or 24.6%, to settle at $US12.78 a barrel in New York. It was trading above $US13 a barrel in early Asian dealings Tuesday morning.
The settlement was the second-lowest for the June contract after its April 21 $US11.57 finish, based on data going back to November 2011, according to Dow Jones Market Data.
Monday’s loss follows a 32.3% slump last week — the biggest weekly fall on record based on most-active contracts for WTI.
June Brent crude futures fell $US1.45, or 6.8%, at settle at $US19.99 a barrel in Europe, following its 23.7% weekly drop.
Complicating matters was the activities of the liquidity in the nearby July WTI contract where an ETF called the United States Oil Fund LP (USO) is rolling into deferred contracts (out months like July) following the disaster last Monday with the May WTI contract, which expired last week at a negative price.
The USO said Monday that it would reduce its holdings of oil futures contracts in specific months. It will now have about 30% of its holdings in the July futures contracts.
That contributed to a decline in the front-month June WTI contract as the USO effectively ’sold’ their June positions and rolled them into July and some more distant months to try and limit its exposure to the weak oil price and the downward pressure from the growing surplus of oil.
It is the third time this month that USO has been forced to change the composition of its oil contracts to try and escape the pressure in the current month’s contract from the surplus of supply and weak demand. This looks like to have driven much of the latest price fall in the June WTI contract.
The continuing weakness in oil means the output cut agreement by OPEC and other major producers has failed to quell rampant worries about too much crude and concerns about where it is to be stored.
The higher prices for contracts for oil in later months have consequently encouraged further storing of crude and amplified pressures on the price of the current contract.
OPEC and allies, including Russia, are due to commence cuts equating to 9.7 million a barrel a day, about 13% of global production, on Friday, May 1 through to the end of June. But that will do little to address a global glut of historic proportions.
The big problem is the demand shock resulting from the COVID-19 outbreak that has brought global economies to a near standstill, while producers have still been churning out the stuff and can’t shut down quickly enough.
