Oil prices on brink of another collapse as storage dries up
Oil prices were on the precipice this afternoon amid fears that a repeat of last week’s historic collapse into the negative could be on the cards.
By mid-afternoon, the price of the June delivery contract for US standard West Texas Intermediate (WTI) had dropped nearly 28 per cent as storage facilities across the country approached capacity.
Last week the May front end contract for the commodity expired, leaving traders scrabbling to offload contracts or else take delivery with nowhere to store their oil.
Such was their desperation that prices dropped as low as -$37 as traders began paying to get rid of their contracts.
With tank tops now nearly at their limits, and any considerable cut in production still not forthcoming, the chances of another such slide are growing more and more likely.
The main crude delivery point at Cushing in Oklahoma has already breached 70 per cent capacity, with the rest of the space already leased out to producers.
Overrall US crude oil inventories are likewise on the brink of all-time highs, just 17m barrels short of the 535m barrel record set in 2017.
Global benchmark Brent crude, which rallied strongly at the end of last week, also dipped back below $20 a barrel after an eight per cent slide.
In a week which saw prices fall for the eighth week out of nine, Brent briefly touched levels last seen prior to the millennium.
Rystad Energy’s head of oil markets Bjornar Tonhaugen said that downward pressure would remain until significant shut-ins began to take place:
“Neither an earlier start of production curtailments by Saudi Aramco and Kuwait Petroleum Corporation, nor a historically large 500,000 bpd monthly US oil production decline in May-June will remove enough oil supply to avoid filling the world’s crude storage during May.
“The market knows that the storage problem remains and we are on a calculated path to reach tank tops in weeks. Prices can’t do else but decline when producers won’t have where to store oil soon”.
In a note, JP Morgan said that unless producers shut in 1m barrels worth of production by May, the WTI price “revisit a negative value”.
Oil cartel Opec is due to begin its 9.7m barrel per day output curbs this month, but with demand set to drop by 26m barrels in May, a significant overhang remains.