U.S. oil futures led losses, falling by more than $3 a barrel on fears that storage at Cushing, Oklahoma, could reach full capacity soon. U.S. West Texas Intermediate June futures fell $3.61, or 21.3%, to $13.33 a barrel by 12.15 GMT. Brent crude was down $1.17, or 5.5%, at $20.27 a barrel. The June Brent contract expires on Thursday. Oil futures marked their third straight week of losses last week, with Brent ending 24% down and WTI off about 7%.
Prices have now fallen for eight of the past nine weeks. The June WTI contract’s price fall may have been triggered partly by investors moving to later months after the May contract lapsed into negative territory for the first time before its expiry last week. The front-month contract was trading at lower than usual volumes.
“The market is very concerned about 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.
U.S. crude inventories rose to 518.6 million barrels in the week to April 17, near the record 535 million barrels set in 2017. Cushing, the delivery point for WTI, was 70% full in mid-April, though 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 by 30% because of the pandemic.
In the United States, a record 26.5 million Americans have filed for unemployment benefits since mid-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 (the) massive fall in global oil demand,” said oil broker PVM’s Tamas Varga.
The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, this month pledged 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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