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Oil storage crisis deepens as losses spill out globally

 

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Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, US. Photo: Reuters

Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, US. Photo: Reuters

REUTERS

Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, US. Photo: Reuters

The unprecedented oil market meltdown accelerated on Tuesday with losses sweeping through markets as the world runs out of places to store unwanted crude and grapples with negative pricing.

West Texas Intermediate (WTI), the standard US crude, plunged below zero on Monday for the first time in history as May futures neared expiration, leaving traders in a panic as they tried to avoid taking delivery of physical barrels.

Yesterday, the losses spread to the following month's contract - highlighting that a massive supply glut is driving the rout rather than just a technical quirk.

The collapse of later contracts underscored the severity of the crisis rocking oil in the age of coronavirus.

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

In the market for global benchmark Brent crude in London, the immediate contract was at its biggest discount, or contango, to the following one in data since 2008. US marker WTI's June contract was halted three times early in New York to manage the volatility, CME Group said.

John Kilduff, a partner at Again Capital, said the situations that plagued the May contract will continue in to June. "There is no doubt in my mind about that," he said. "The conditions that generated the negative pricing for the May contract are going to persist throughout."

"I didn't think we would ever see this," Ben Luckock, co-head of oil trading at Trafigura, said in a Bloomberg TV interview.

"We have a distressed market and we are seeing unprecedented price moves and that is what we have to deal with at the moment."

It is possible WTI for June will also move to negative prices, he said.

That contract for US benchmark WTI dropped as much as 42pc to $11.79 (€10.90) a barrel, before recovering slightly to $12.85 as of late morning in New York.

The thinly traded May contract rallied to $4.82 a barrel after settling in the previous session at minus $37.63.

Brent crude futures for June slumped almost 26pc to $19.02, having earlier dropped to as low as $18.10.

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

Crude stockpiles at Cushing - America's key storage hub and delivery point of the WTI contract - have jumped 48pc to almost 55 million barrels since the end of February.

Countries fighting the virus pandemic have been on lockdown for weeks, drastically cutting road and air travel and stopping most economic activity.

It is forcing refineries from Asia to Europe and the US to use far less crude.

Bloomberg

Irish Independent