Oil prices fall on oversupply and storage capacity fears
Oil prices fell today on concerns about scarce storage capacity and global economic doldrums from the coronavirus pandemic.
US oil futures led losses, falling by more than $2 a barrel on fears that storage at Cushing, Oklahoma, could reach full capacity soon.
US West Texas Intermediate June futures fell $2.86, or 16.88%, to $14.08 a barrel just before lunchtime.
Brent crude was down 83 cents, or 3.9%, at $20.61 a barrel. The June Brent contract expires on Thursday.
Oil futures marked their third week of losses in a row last week – and have fallen for eight of the past nine – with Brent ending down 24% and WTI off around 7%.
The June WTI contract’s price fall may have been partly triggered by investors moving to later months after the May contract lapsed into negative territory for the first time ever before expiring last week.
The front-month contract was trading at lower-than-usual volumes.
“The market is very concerned of a repeat of negative pricing as the Cushing storage and delivery hub saturates,” Harry Tchilinguirian, global oil strategist at BNP Paribas in London, told the Reuters Global Oil Forum.
“The shift of open interest away from June will have negative consequences for the liquidity of the contract, potentially leading to greater volatility in its price,” he added.
US crude inventories rose to 518.6 million barrels in the week to April 17, near an all-time record of 535 million barrels set in 2017.
Cushing, the delivery point for WTI, was 70% full as of mid-April, although traders said all available space was already leased.
Global economic output is expected to contract by 2% this year, worse than the financial crisis, while demand has collapsed 30% due to the pandemic.
In the US, a record 26.5 million Americans have filed for unemployment benefits since the middle of March, and the Congressional Budget Office predicted that the economy would contract by nearly 40% annually in the second quarter.
“The current oil balance is simply awful, and no improvement is anticipated until after June due to massive fall in global oil demand,” said oil broker PVM’s Tamas Varga.
The Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+, pledged this month to cut output by an unprecedented 9.7 million barrels per day in May and June.
Kuwait and Azerbaijan are coordinating oil output cuts, while Russia is set to reduce its western seaborne exports by half in May.
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