US oil returns to positive territory after crash
US oil prices rebounded above zero Tuesday, a day after futures ended in negative territory for the first time as a coronavirus-triggered collapse in demand leaves the world awash in crude.
In afternoon Asian trade, US benchmark West Texas Intermediate for May delivery was changing hands at $1.67 a barrel after closing at -$37.63 in New York. The massive sell-off came ahead of the expiry of the May futures contract later Tuesday, as traders desperately sought to find buyers to take physical possession of the oil. But with the glut in markets and storage facilities full, buyers were hard to come buy — and the price collapse Monday indicated that traders were paying to have crude taken off their hands.
Traders are now more focused on the contract for June delivery, which had trading volumes more than 60 times higher. That also rebounded Tuesday, rising nearly five percent to more than $21 a barrel following a close of $20.43 a barrel in New York. Brent crude, the international benchmark, was changing hands at $25.40 a barrel for June delivery, down 0.16 percent. Even though the industry has got used to volatility during the virus crisis, Monday’s carnage was without precedent and Trifecta Consultants analyst Sukrit Vijayakar described it as “one of the most extraordinary trading days in the history of any commodity”. –
‘More downside ahead’ – Oil markets have plunged in recent weeks as lockdowns, travel restrictions and business closures to fight the coronavirus around the world batter demand. The crisis was worsened by a price war between Saudi Arabia and Russia. Riyadh and Moscow drew a line under the dispute and, along with other top producers, struck a deal to cut output by almost 10 million barrels a day earlier this month. But prices have continued to fall as analysts say the cuts are not enough, and as storage facilities reach capacity.
US crude’s collapse Monday was triggered in part by the closely monitored WTI storage facility at Cushing, Oklahoma filling up, as well as traders closing out their positions before the expiry of the May contract. “The WTI May futures contract is due to expire on Tuesday, forcing any holders of that contract to accept physical delivery,” ANZ Bank said in a note.
“With storage facilities filling up fast, particularly at the WTI pricing point, Cushing, there are fears that there will be nowhere to store it.” Even if prices claw back the losses, the market will likely remain hobbled by weak demand and oversupply.
“The underlying causes for that sell-off, a giant global supply glut and nowhere to store, remain the same,” OANDA senior market analyst Jeffrey Halley told AFP. “Rallies in both Brent and WTI will remain very limited… If anything, more downside lies ahead for both.”