Oil prices on Monday suffered its biggest one-day price plunge in the modern era, at one point crashing about 40 per cent to below $12 a barrel as traders contended with an historic glut.
LEADERSHIP check, revealed that Brent LCOc1 was down $1.62, or 5.8 per cent, at $26.46 a barrel by 1211 GMT, while the front-month May WTI contract CLc1 fell $6.22, or 34 per cent, to $12.05.
At one point, the contract hit a low of $11.04 a barrel, the lowest since 1998.
The price fall came as concerns that U.S. crude storage will soon be full and bleak economic data hit sentiment.
This is coming despite OPEC+’s unprecedented output deal agreed a week ago, the oil market remains massively oversupplied as the lockdowns to fight the spread of the coronavirus reduce global crude demand by about a third.
However, Bloomberg report says early trading in New York, West Texas Intermediate fell to as low as of $10.96 a barrel, the weakest level since 1998.
The report added that the plunge was exaggerated as the May futures contract expires on Tuesday, leading to a fire-sale among traders who don’t have access to storage. The June contract fell 13 per cent to $21.80 a barrel at 9:13 a.m. local time. Brent declined 7.1 per cent to $26.08.
“There are signs of weakness everywhere. Buyers in Texas are offering as little as $2 a barrel for some oil streams, raising the possibility that producers may soon have to pay to have crude taken off their hands. The nearest timespread for the U.S. benchmark has fallen to its weakest level on record,” Bloomberg reported.
Similarly, analysts told Reuters that the sell-off was exaggerated by the contract’s imminent expiry.
“The May contract is set to expire tomorrow and the bulk of the open interest and volume is already in the June contract,” ING’s head of commodities strategy, Warren Patterson told Reuters.
According to the news agency, the spread between front-month contract and second month was more than $10, the widest in history, as the June contract CLc2, which is more actively traded, fell $2.63, or 10.5 per cent to $22.40 a barrel.
“Many investors appeared to be misled by what appeared to be a low oil price, without taking into consideration the fact that the oil future contracts expire normally on a monthly basis, Commerzbank analyst Carsten Fritsch told Reuters.
The volume of oil held in U.S. storage, especially at the Cushing delivery point for the U.S. West Texas Intermediate (WTI) contract in Oklahoma, is rising as refiners throttle back activity in the face of weak demand. [EIA/S]
“As production continues relatively unscathed, storage is filling up by the day. The world is using less and less oil and producers now feel how this translates in prices,” said Rystad’s head of oil markets, Bjornar Tonhaugen.
Oil in floating tanker storage is also estimated at a record 160 million barrels. Weak global economic data also put pressure on prices.