Oil prices plummet as global reserve limits start to reach limit in the midst of weak demand
The price of oil dropped once again on Tuesday (Apr 27) as worries rose regarding the diminishing ability to stockpile oil around the world, also uplifted by fears that demand for the commodity might take a long time to return to normal once nations loosen restrictions on business and public activity as a means to curb the COVID-19 pandemic.
US West Texas Intermediate (WTI) crude futures tumbled to a meager US$10.64 a barrel on Tuesday (Apr 28), and were off 12.8%, or US$1.64, at US$11.14 a barrel at 0635 GMT. WTI plunged 25% on Monday (Apr 27). Brent crude futures also tumbled to a low of US$18.85 and were last down 4.3%, or 85 cents, at US$19.14 a barrel. The benchmark slid 6.8% on Monday (Apr 27), and the agreement for June shipments expire on April 30.
Analysts said some portion of the WTI drop can be attributed to retail investment vehicles like funds that are traded on the exchange selling head of front-month June contract and then buying back months after the fact to avoid incredible losses like those suffered during WTI’s plunge to zero.
The United States Oil Fund LP, the biggest oil-centered US exchange-traded offering, said it also plans move its assets into future contracts.
"With the USO ETF due to continuing selling down its June WTI position for the rest of the week, nobody else who needs to, or wants to sell, is hanging around and waiting for them to do so," said Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore.
Indeed, even with the OPEC and partners, as led by Russia, having made a record agreement to cut production to about 10 million barrels per day (bpd) from May 1, that volume isn't nowhere close to enough to balance a fall in demand of roughly 30 million bpd due to coronavirus restrictions on business.
Russian Energy Minister Alexander Novak said on Tuesday (Apr 28) that the market would start equalizing once the OPEC+ deal comes into effect, but no serious spike in prices was foreseeable in the near future due to the colossal global crude reserves.
"Looking ahead, and all attention will be on inventory numbers this week, and in particular the build we see at Cushing, the WTI delivery hub," ING's head of commodities strategy Warren Patterson said.
"If we see similar builds to the last few weeks, we will likely reach full capacity at Cushing over the first half of May, which should maintain bearish pressure on the market."
Following the plunging demand, worldwide crude reserves are evaluated to be approximately 85% of capacity last week, as indicated by information from consultancy firm Kpler.
In an indication of the energy sector’s distressing need to keep the fuel somewhere, oil merchants are resorting to recruiting costly US ships as a means of overseas storage, according to logistics sources.