Foreign Desk Report
NEW YORK (Reuters) – U.S. crude oil futures turned negative on Monday for the first time in history as storage space was filling up, discouraging buyers as weak economic data from Germany and Japan cast doubt on when fuel consumption will recover.
Physical demand for crude has dried up, creating a global supply glut as billions of people stay home to slow the spread of the novel coronavirus.
The May U.S. WTI contract fell $19.06, or 104.3%, to a discount of 79 cents a barrel at 2:09 p.m (1809 GMT) after touching an all-time low of -$1.43 a barrel. Brent was down $1.85, or 6.6%, at $26.23 a barrel.
The June WTI contract is trading more actively at a much higher level of $21.6 a barrel. The spread between May and June was more than $23, the widest in history for the two nearest monthly contracts.
Investors bailed out of the May contract ahead of expiry later on Monday because of lack of demand for the actual oil. When a futures contract expires, traders must decide whether to take delivery of the oil or roll their positions into another futures contract for a later month.
Oil prices collapsed to more than two-decade lows Monday as traders grow concerned that storage facilities are reaching their limits, while signs that the coronavirus may have peaked in Europe and the United States were unable to help Asian equities extend their recent advances. US crude benchmark West Texas Intermediate briefly plunged almost 20 percent to below $14.50 its lowest since 1999 as stockpiles continue to build owing to a crash in demand caused by the COVID-19 pandemic.
Analysts said this month’s agreement between top producers to slash output by 10 million barrels a day was having little impact on the oil crisis because of lockdowns and travel restrictions that are keeping billions of people at home. WTI was hit particularly hard as its main US storage facilities in Cushing, Oklahoma, were filling up, with Trifecta Consultants analyst Sukrit Vijayakar saying refineries were not processing crude fast enough.
There are also plenty of supplies from the Middle East with no buyers as “freight costs are high”, he told media. “I think we will see a test of the 1998 lows at $11 sooner rather than later,” OANDA senior market analyst Jeffrey Halley told reporters. And AxiCorp’s Stephen Innes added: “It’s a dump at all cost as no one wants delivery of oil, with Cushing storage facilities filling by the minute. “It hasn’t taken long for the market to recognise that the OPEC+ deal will not, in its present form, be enough to balance oil markets.” Stock markets were mostly lower despite govts starting to consider how and when to ease lockdowns that have crippled the global economy.
