Oil meltdown spreads as WTI crude prices for June plunge 42%

NEW YORK • The oil meltdown accelerated yesterday, with huge losses sweeping through markets as the world runs out of places to store unwanted crude and grapples with negative pricing.

West Texas Intermediate (WTI) had plunged below zero on Monday for the first time in history with the contract for May nearing expiration, leaving traders in a panic as they tried to avoid taking delivery of physical barrels.

Yesterday, the losses spread to the next month - highlighting the massive glut in the market causing the rout rather than any technical quirk.

The collapse of later contracts underscored the severity of the crisis.

Storage tanks, pipelines and tankers are rapidly being overwhelmed by a vast oversupply caused by slumping fuel demand as countries are locked down to fight the coronavirus.

Traders everywhere are having to reassess their risk after Monday's unprecedented collapse, leading to violent intraday swings.

"Once you have negative prices in crude oil, the limits change totally," said Mr Olivier Jakob, managing director of Petromatrix.

"What happened yesterday was extremely bad for the confidence in the futures market. It's not just back to normal trading anymore."

WTI for June delivery dropped as much as 42 per cent to US$11.79 a barrel, before recovering slightly to US$16.44 as of 7.17 am in New York.

The thinly traded May contract remained below zero at minus US$5.78 a barrel.

Brent crude slumped 16 per cent to US$21.37, having earlier dropped to as low as US$18.10.

The collapse is reverberating across the oil industry, with prices trading below zero across the United States. WTI Midland in Texas - a flagship marker for the US shale industry - was at minus US$13.13 a barrel, while crude in Alaska was at minus US$46.63.

There are signs that these stunningly low prices are here to stay as tanks across the globe fill up.

Royal Vopak, the world's biggest independent storage company, said almost all of its space is sold. Crude stockpiles in Cushing - America's key storage hub and delivery point of the WTI contract - have jumped 48 per cent to almost 55 million barrels since the end of February.

US nationwide inventories are estimated to have increased by another 14 million barrels last week, according to a Bloomberg survey.

Countries fighting the pandemic have been on lockdown for weeks, drastically cutting road and air travel and stopping most economic activity. Many governments are extending confinement measures, ravaging demand further. That is forcing refineries from Asia to Europe and the US to use far less crude.

The speed and scale of the crash has been so massive that it has left plans for unprecedented production cuts by the Organisation of Petroleum Exporting Countries and its allies completely ineffective.

To make matters worse, the supply reductions only start from next month, and the current market continues to be awash with crude.

"This is the kind of price that focuses minds in oil-producing nations, and minds are so focused they're probably telekinetic at this point, or at least bending spoons," said Mr Kevin Book, head of research at ClearView Energy Partners.

BLOOMBERG