NEW YORK (Reuters) – Brent oil futures prices plunged again on Tuesday, extending the oil market’s panic into a second day with no end in sight to a swelling global crude glut as the coronavirus pandemic has obliterated demand for fuel.
FILE PHOTO: The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. REUTERS/Angus Mordant
Monday and Tuesday have been two of the most turbulent days in the history of oil trading, as investors confront the reality that worldwide supply will overwhelm demand for months or years and current production cuts to offset that glut are nowhere near sufficient.
After Monday’s trade, when the front-month May U.S. contract fell into negative territory for the first time in history, Tuesday set a new milestone as more than 2 million contracts for U.S. crude for delivery in June changed hands, the busiest day in history, according to exchange operator CME Group.
Brent futures LCOc1 for June delivery settled down 24% to $19.33 a barrel, their lowest since February 2002. U.S. West Texas Intermediate (WTI) crude CLc2 for June, the front-month contract as of Wednesday, fell $8.86, or 43%, to settle at $11.57.
The U.S. May contract CLK0CLc1, which expired on Tuesday, rebounded from its deep dive into negative territory, rising to $10.01 from its settle at minus $37.63 on Monday.
Oil inventories have been building for weeks after Saudi Arabia and Russia early in March failed to come to terms on extending output cuts as the coronavirus pandemic worsened. Since that time, the pandemic’s spread has cut fuel demand by roughly 30% worldwide.
The Organization of the Petroleum Exporting Countries and its allies, including Russia, finally announced sweeping cuts in production in early April, amounting to almost 10% of global supplies. But with economies virtually at a standstill due to coronavirus lockdowns, that is not enough to offset the declining demand.
Both Saudi Arabia and Russia said on Tuesday that they were ready to take extra measures to stabilize oil markets along with other producers, but they have not taken action yet.
“The math is pretty simple. Current oil production is about 90 million barrels per day, but demand is only 75 million barrels per day,” said Gregory Leo, chief investment officer and head of global wealth management at IDB Bank.
Meanwhile, in Texas, however, oil and gas regulators declined to force producers to curtail oil output. The Texas Railroad Commission, which regulates energy companies in that state, had considered intervening in markets for the first time in nearly 50 years.
“Texas punted their decision and with OPEC not showing any urgency, that pretty much means the world will run out of room to store oil by the second week of May,” said Edward Moya, senior market analyst at OANDA in New York.
The main U.S. storage hub in Cushing, Oklahoma, delivery point for WTI, is expected to be full within weeks.
Official U.S. government data shows that storage at Cushing was just 70% full as of mid-April. Traders, however, say that is bunk – because whatever is left is spoken for by firms sending oil to the hub right now.
U.S. President Donald Trump called on the government to make funds available to the U.S. oil and gas industry, calling Monday’s crash a “financial squeeze” and mooting a halt to Saudi imports.
U.S. crude inventories were expected to rise by about 15.2 million barrels last week after posting the biggest one-week build in history in the previous week, analysts polled by Reuters said. [EIA/S]
The American Petroleum Institute (API) is set to release its data at 4:30 p.m. (2030 GMT) on Tuesday.
Reporting by David Gaffen, Stephanie Kelly, Devika Krishna Kumar and Laura Sanicola in New York, Noah Browning in London and Jane Chung in Seoul; Editing by David Gregorio and Marguerita Choy