By Alex Longley
April 19, 2020, 3:28 PM PDT Updated on April 20, 2020, 5:16 AM PDT
Oil plunged the most on record to below $12 a barrel in New York as a historic demand slump fills inventories to the brim.
Futures fell as much as 40%. While the collapse reflects the most immediate May contract expiring on Tuesday, it nonetheless highlights a fast-growing glut of oil, and rapidly expanding stockpiles at the American hub at Cushing, Oklahoma. OPEC+’s record production cuts from next month are paling in the face of this evaporating demand.
The upcoming May contract’s expiry means traders are shifting their positions to June as they try to avoid taking deliveries of cargoes because of the lack of space to store them. That has opened up an unprecedented discount of more than $10 between the two nearest contracts.
There are signs of weakness everywhere. Buyers in Texas are 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. China reported its first economic contraction in decades on Friday, an indication of what’s to come in other major economies that have yet to emerge from coronavirus-driven lockdowns.
“There is no limit to the downside to prices when inventories and pipelines are full,” commodities hedge fund manager Pierre Andurand said on Twitter. “Negative prices are possible.”
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Crude stockpiles at Cushing -- the key U.S. storage hub -- have jumped 48% to almost 55 million barrels since the end of February. The hub had working storage capacity of 76 million as of Sept. 30, according to the Energy Information Administration.
Despite the weakness in headline prices, retail investors are plowing 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. The fund has said it would move some of its WTI holdings into the July contract, citing regulatory and market conditions.
The price collapse is reverberating across the oil industry. Crude explorers shut down 13% of the American drilling fleet last week. While that could cut production, with companies crimping their spending, it may not be enough.
“U.S. shut-ins are gaining pace, but not fast enough to avoid storage filling to max,” said Paul Horsnell, head of commodities at Standard Chartered.
Source: Bloomberg
