Oil in London tumbled to the lowest in almost 21 years as the global benchmark was sucked into the rout that sent U.S. futures below zero for the first time ever this week.
Brent futures for June delivery lost 15% to trade near $16 a barrel while New York’s West Texas Intermediate fell 5% having lost almost half its value on Tuesday. Prices continue to crash amid fears the massive glut that sent May WTI to as low as minus $40.32 a barrel on Monday is only going to get worse.
With global demand crushed by coronavirus lockdowns, concerns that the unwanted oil is going to overwhelm storage capacity have triggered a selling frenzy. Oil ministers from the OPEC+ coalition held an unscheduled conference call on Tuesday to discuss the rout, though a closing statement signaled they didn’t settle on any new policy measures.
The alliance agreed to slash production by about 10 million barrels per day earlier this month, but the cuts won’t kick in until May. Even then, they won’t be enough to balance out the demand destruction from the virus, which could be as high as 30 million barrels a day.
There are signs that these stunningly low prices are here to stay as supply dwarfs consumption. Royal Vopak NV, the world’s biggest independent storage company, said almost all of its space is sold, while Clarksons Platou said floating storage is accelerating at an “unprecedented pace.” Traditional oil bull Pierre Andurand warned crude could tumble below zero again and described the market as dangerous to trade in.
The rout is leaving the United States Oil Fund, the world’s biggest crude-tracking vehicle, at risk of becoming another casualty of the crisis. The fund has scrambled to move its holdings into longer-dated contracts among measures forced on it in the last few days.
More casualties began to emerge as Interactive Brokers LLC announced an $88 million provisional loss after customers holding long positions in May WTI at expiration triggered losses in excess of the equity in their accounts. In South Korea, the meltdown froze the trading system of brokerage Kiwoom Securities Co. as it failed to recognize prices below zero.
“The entire energy market is still on a knife edge because what should have been contained within the WTI contract for May delivery has now had far-reaching spillover effects,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. The U.S. Oil Fund’s existence is in question, and there are still no answers on storage or when demand might improve, he said.
Brent for June settlement declined 15% to $16.35 a barrel on the ICE Futures Europe exchange as of 1:28 p.m. in Singapore after plummeting 24% on Tuesday. It dropped to as low as $15.98, the weakest since June 1999.
WTI for June lost 5.2% to $10.97 a barrel on the New York Mercantile Exchange. It fell to as low as $6.50 at one point on Tuesday, with trading halted three times to manage the volatility.
The Dated Brent benchmark, a global reference for nearly two-thirds of the world’s physical flows, plunged to $13.24 a barrel on Tuesday, the lowest since 1999, according to price reporting agency S&P Global Platts. That means that key European and African crude streams including Urals and Bonny Light will now sell under $10, as they trade at a discount to the Dated Brent benchmark.
In the U.S., the Texas Railroad Commission opted to put off a decision on whether to impose oil-production quotas, while the Trump administration vowed to rescue the industry with stimulus funds and other measures. Meanwhile, the American Exploration and Production Council said China was falling behind on its pledge to buy more U.S. energy and urged the White House to get tough on Beijing.
Inventories at the biggest U.S. storage hub in Cushing, Oklahoma, are at the highest since 2017 and are expected rise further. The industry-funded American Petroleum Institute reported that crude stockpiles rose 13.2 million barrels last week and supplies at Cushing increased by nearly 5 million barrels, according to people familiar with the data. The official Energy Information Administration figures are due later on Wednesday.
“No one knows where the bottom is,” said Vandana Hari, founder of Vanda Insights in Singapore. There could be another round of bloodletting if the EIA data shows a similar increase in stockpiles to the API figures, she said.