Brent crude futures plunged 25 per cent on Tuesday to the lowest in nearly two decades, a day after panicked traders sent US oil below minus $40 per barrel on fears of a historic glut because of the destruction of fuel demand by the coronavirus pandemic.
Monday’s historic crash in US crude futures saw the front-month May contract, which expires Tuesday, settling at a negative $37.63 a barrel as traders facing a dearth of storage space and customers scrambled to avoid taking delivery of barrels.
While that trade was anomalous, the steep decline in Brent and US futures expiring in June showed the market remained worried that the overwhelming supply and weak demand will persist for weeks.
Brent futures for June delivery fell $6.52, or 25.5 per cent, to $19.05 a barrel by noon, while US West Texas Intermediate (WTI) crude for June fell $9.09, or 44.5 per cent, to $9.09.
At their session lows, the Brent front-month fell to $18.10 a barrel, its lowest since December 2001, while the WTI second-month fell to $11.00, the lowest for that contract since December 1998.
WTI for May delivery, meanwhile, rebounded from its negative condition. It was trading at $4.80 a barrel, as most of open positions coming into this week were settled on Monday.
“With available storage in short supply, nobody wanted to hold a contract about to come due,” Konstantinos Venetis, senior economist at TS Lombard, an independent investment research provider, said in a note.
“US shale producers are fast approaching the point where they will be forced to shut down operations.'
The main US storage hub in Cushing, Oklahoma, delivery point for WTI, is expected to be full within weeks.
Sugandha Sachdeva of Religare Broking said: It’s a grim situation, playing out in the oil markets, grabbing eyeballs of the entire investor fraternity and defying logic... Put simply, for WTI, the sellers are paying the buyers.
“In complete contrast, Brent crude prices are trading at about $25/bbl. The reason for this sharp divergence is that WTI needs to be physically delivered at Cushing whereas for Brent contract, deliveries can be done offshore at multiple locations.”
