U.S. Crude Futures Plunges to Lowest Price Due to Scant Storage, Poor Demand

U.S. crude futures plunged more than 85% on Monday to the lowest price on record as storage space for U.S. crude was filling up, discouraging buyers even 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 $15.91, or 87.1%, to $2.36 a barrel at 1:25 p.m (1725 GMT) after touching an all-time low of $2.26. Brent LCOc1 was down $1.76, or 6.3%, to $26.32 a barrel.

The June WTI contract CLc2 is trading more actively at a much higher level of $22.25 a barrel. The spread between May and June was more than $19, 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.

Usually, this process is relatively uncomplicated, but this time, there are very few counterparties that will buy from investors and take delivery of the oil. Storage is filling quickly at Cushing in Oklahoma, which is where the crude is delivered. [EIA/S]

“There is no bid for May WTI as there is no buyer and we have yet to see a significant reduction is supply at Cushing to offset it,” said Scott Shelton, energy specialist at United ICAP.

Refiners are processing much less crude than normal, so hundreds of millions of barrels have gushed into storage facilities worldwide. Traders have hired vessels just to anchor them and fill them with the excess oil. A record 160 million barrels is sitting in tankers around the world.

U.S. Crude stockpiles at Cushing rose 9% in the week to April 17, totaling around 61 million barrels, market analysts said, citing a Monday report from Genscape.

“The storage is too full for speculators to buy this contract and the refiners are running at low levels because we haven’t lifted stay-at-home orders in most states,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “There’s not a lot of hope that things are going to change in 24 hours.”

Many investors may have been misled by what appeared to be a very low oil price and did not consider the monthly expiry of futures contracts, Commerzbank analyst Carsten Fritsch said.

Prices have been pressured for weeks with the coronavirus outbreak hammering demand while Saudi Arabia and Russia fought a price war and pumped more. The two sides agreed more than a week ago to cut supply by 9.7 million bpd, but that will not quickly reduce the global glut.

Brent oil prices have collapsed around 60% since the start of the year, while U.S. crude futures have fallen around 95%, to levels well below break-even costs necessary for many shale drillers. This has led to drilling halts and drastic spending cuts.

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Weak global economic data also pressured prices. The German economy is in severe recession and recovery is unlikely to be quick as coronavirus-related restrictions could stay in place for an extended period, the Bundesbank said.

Japanese exports declined the most in nearly four years in March as U.S.-bound shipments, including cars, fell at their fastest rate since 2011.

Halliburton Co (HAL.N), which generates most of its oil business in North America, joined its larger rival Schlumberger in taking impairment hits in the first quarter and issued a bleak outlook for North America.

Canada, the world’s fourth-largest oil producer, has begun to rein in production, but analysts say the biggest cuts lie ahead.

The Russian energy ministry has told domestic oil producers to reduce oil output by around 20% from their average February levels, two industry sources told Reuters, which would bring Moscow in line with its commitment under a global deal.