Oil drops 20{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} extending recent losses as storage fills

Oil prices plunged more than 20{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} on Monday on fears that worldwide storage will soon fill as the coronavirus outbreak continues to roil demand.

West Texas Intermediate for June delivery fell 23.5{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}, or $4.02, to trade at $12.91 per barrel, while international benchmark Brent crude traded 6.2{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} lower at $20.11 per barrel. Each contract is coming off its eighth week of losses in nine weeks.

WTI for July delivery fell more than 11{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} to $18.84 while the August contract slipped more than 7{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} to $22, suggesting the Street doesn’t see a meaningful recovery in the next few months.

“The market knows that the storage problem remains and we are on a calculated path to reach tank tops in weeks,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy. “Actions are needed now as the problem stopped being theoretical and far away. The storage clock is ticking for producers and we are approaching the final countdown if no further action is taken.”

WTI, the U.S. benchmark, has fallen more than Brent as traders eye the quickly filling tanks at Cushing, Oklahoma, which is the largest storage facility in the U.S. apart from the Strategic Petroleum Reserve. It’s also where the contract prices. U.S. stockpiles rose by 15 million barrels to 518.6 million barrels for the week ending April 17, according to the U.S. Energy Information Association.

At closely watched Cushing, Oklahoma, oil in storage rose by about 10{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} in a week to 59.7 million barrels, about 25 million barrels shy of its capacity. 

With prices at such depressed levels — WTI and Brent have dropped 72{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} and 68{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} this year, respectively — producers are struggling to breakeven. On Sunday Houston-based Diamond Offshore Drilling filed for bankruptcy protection, and analysts say that more bankruptcies could be coming.

Last Monday WTI plunged below zero and into negative territory for the first time in history as holders of the contract for May delivery — which was set to expire the next day — scrambled to sell their contract. But with oil demand not expected to recover anytime soon, and with nowhere to store oil, there was no buyer on the other side. In the end, the contract holders had to pay to have it taken off their hands.

Earlier in April OPEC and its oil-producing allies agreed to a historic production cut that would take 9.7 million barrels per day of production offline beginning May 1. A number of U.S. producers, including Exxon and Chevron, have also said they will scale back, but investors fear that it simply won’t be fast enough. In addition to being costly, shutting in wells can also take time.

Citi’s Michael Hsueh said that prices won’t rebound until there’s a meaningful recovery in demand.

“We would need to see a recovery in oil product demand in the end user markets, for example motorists, airlines and manufacturers, as countries cautiously relax epidemic mitigation efforts possibly as soon as May, but more so in June,” he said Friday in a note to clients.

“We would need to see a normalisation of oil inventory from abnormally high levels, since oil refiners will choose to drawdown inventory in the first instance, before resuming a normal pace of buying,” he added.

– CNBC’s Michael Bloom and Patti Domm contributed reporting.

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