Oil rebounds from record wipeout with prices edging above zero

Oil rebounded in Asian trading, after plunging below zero for the first time in history amid rapidly filling American storage tanks, as the U.S. benchmark’s May contract entered its final trading session.

Smoke rises from the Valero Houston Refinery in Houston, Texas, on April 20, 2020. - US oil prices crashed to unprecedented lows on April 20 as futures in New York ended in negative territory for the first time amid a devastating supply glut that has forced traders to pay others to take the crude off their hands. (Photo by Mark Felix / AFP) (AFP)
Smoke rises from the Valero Houston Refinery in Houston, Texas, on April 20, 2020. - US oil prices crashed to unprecedented lows on April 20 as futures in New York ended in negative territory for the first time amid a devastating supply glut that has forced traders to pay others to take the crude off their hands. (Photo by Mark Felix / AFP)

Futures in New York traded at around $2 a barrel after sinking to as low as minus $40.32 during Monday’s jaw-dropping collapse. The June contract, however, which had trading volumes more than 40 times higher, rose toward $22. The spread between the two reflects the growing fear that those who take physical delivery of crude in the near future may not find any outlet or storage for those barrels as refineries curb operations.

Also Read : Russia orders companies to cut oil output by 20% from February levels

With the coronavirus pandemic bringing the U.S. and much of the global economy to a standstill, processors are using far less crude, leaving so much unused oil sloshing around that American energy companies are running out of room to store it. And if there’s no place to put the oil, nobody wants a crude contract that is about to come due.

Also check these Vehicles

Find more Cars
Mahindra Ekuv100 (HT Auto photo)
₹ 8.25 - 10 Lakhs* *Expected Price
View Details
Mahindra S204 (HT Auto photo)
₹ 12 Lakhs *Expected Price
View Details
Rolls-royce New Ghost (HT Auto photo)
₹ 6.95 - 7.95 Cr* *Expected Price
View Details
Mg 4 Ev (HT Auto photo)
₹ 30 - 32 Lakhs* *Expected Price
View Details
Kia Carnival 2023 (HT Auto photo)
₹ 35 - 39 Lakhs* *Expected Price
View Details
Kia Sorento (HT Auto photo)
₹ 25 - 30 Lakhs* *Expected Price
View Details

Also Read : IOC fills strategic reserves with first shipment of crude from UAE at low rates

“An unprecedented collapse to minus $40 oil at the U.S. benchmark had a lot to do with the expiry of the May contract," said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former White House energy advisor. But it also “reveals significant underlying structural problems as storage capacity fills up that will hang over U.S. prices until supply shuts in and OPEC+ cuts begin to bite," he said.

HT Auto Infographic
HT Auto Infographic

The extreme moves in West Texas Intermediate crude show just how oversupplied the U.S. oil market has become. Global benchmark Brent, by contrast, is trading above $26 a barrel as demand in China recovers. The WTI June contract is likely to see downward pressure in coming weeks and there will be a “violent rebalancing" in American production as storage fills up, Goldman Sachs Group Inc. said in a note.

Oil prices have plunged as coronavirus infections surge, prompting lockdowns and travel bans that have led to a collapse in consumption. The breakdown of the OPEC+ alliance in early March compounded the situation, while the subsequent output-cut agreement proved too little and too late in the face of a one-third collapse in global demand.

WTI for May delivery traded at $1.76 a barrel on the New York Mercantile Exchange as of 9:50 a.m. in Singapore after closing at -$37.63 on Monday. The June contract rose 6.9% to $21.83. Brent added 0.9% to $25.80 a barrel on the ICE Futures Europe exchange after falling 8.9% on Monday.

“The May crude oil contract is going out not with a whimper, but a primal scream," said Daniel Yergin, a Pulitzer Prize-winning oil historian and vice chairman of IHS Markit Ltd.

Crude stockpiles at Cushing -- America’s key storage hub and delivery point of the WTI contract -- have jumped 48% to almost 55 million barrels since the end of February. The hub had working storage capacity of 76 million as of Sept. 30, according to the Energy Information Administration. Cushing is likely to be completely full by the first week of May, Goldman said in the note by analysts including Damien Courvalin.

Crude explorers shut down 13% of the American drilling fleet last week. While production cuts in the country are gaining pace, it isn’t happening quickly enough to avoid storage filling to maximum levels, said Paul Horsnell, head of commodities at Standard Chartered Plc.

Despite the weakness in headline prices, retail investors are continuing to plow money back into oil futures. The U.S. Oil Fund ETF saw a record $552 million come in on Friday, taking total inflows last week to $1.6 billion.

The price collapse is reverberating across the oil industry. Even before Monday’s plunge, buyers in Texas were offering as little as $2 a barrel last week for some oil streams. In Asia, bankers are increasingly reluctant to give commodity traders the credit to survive as lenders grow ever more fearful about the risk of a catastrophic default.

“If we don’t start seeing a recovery in demand soon, it’s likely that the June contract may face a similar fate" as U.S. storage keeps filling, said Warren Patterson, head of commodities strategy at ING Bank NV in Singapore. “It seems as though April will be the month for peak demand destruction, and then we will start to see a slow recovery moving forward."

First Published Date: 21 Apr 2020, 08:27 AM IST
Shopping Bag Shop Now
73% OFF
IDELLA Car Duster, Extendable Long Handle Microfiber Car Duster Exterior Scratch Free Car Cleaning Tool, Car Dust Brush for Truck, Pickup, SUV, RV, Motorcycle, Vehicles Cleaning,(Multicolor)
Rs. 239 Rs. 899
64% OFF
Antson Portable High Power 2 in 1 Car Vacuum Cleaner | USB Rechargeable Wireless Handheld Car Vacuum Cleaner Traveling, Camping Reusable and Sustainable, Portable,Rechargeable Vacuum (2 in 1)
Rs. 699 Rs. 1,939
74% OFF
Microfiber Car Cleaning Soft Brush Ideal as Mop Duster, Washing Brush with Long Handle, Dust Cleaner Car Wash Brush with Handle, Soft Brush Scratch Free, Cleaning Dashboard Curved Design - Grey
Rs. 389 Rs. 1,499
1% OFF
GOODAIR Clear Car Windshield Enhancer | Classic |12 Tablets
Rs. 295 Rs. 299

Please provide your details to get Personalized Offers on

Choose city
+91 | Choose city
Choose city
Choose city
Powered by: Acko Logo
Please be noted that any information provided herein above will be received by Acko General Insurance Limited (“Acko”). By mentioning the above information, you agree to provide these details and information to Acko.
By clicking "View Offers" you Agree to our Terms and Privacy Policy

Dear Name

Please verify your mobile number.

+91 | Choose city
Couldn't verify the OTP.
It's either expired or it's incorrect.