The price of US crude oil for June delivery almost halved on Tuesday and Brent, the international benchmark, dropped below $20 per barrel for the first time in 18 years, as global oil markets remained under intense pressure.
The value of West Texas Intermediate for delivery in June — which had held above $20 a barrel on Monday even as the May contract traded at a historically unprecedented negative price — slumped to $6.50 at its worst, before recovering to settle at $11.57, down 43 per cent.
The move suggested the blowout in the May contract was more than just a technical blip, and reflected growing concern that US storage facilities will fill up unless energy demand quickly rebounds from its coronavirus-related collapse.
Brent crude, meanwhile, extended its fall in afternoon trading in New York, touching a fresh low of $17.51 a barrel before recovering slightly to settle at $19.33 a barrel, down 24 per cent on the day.
“The car is speeding up and market forces will inflict further pain until either we hit rock bottom, or Covid clears, whichever comes first,” said Michael Tran, commodity strategist at RBC Capital Markets.
Coronavirus has sent the oil sector into a state of crisis, with lockdowns and travel bans implemented by authorities slashing global demand for crude by as much as a third this month from pre-crisis levels.
The collapse has caused a big headache for President Donald Trump had had touted his recent brokering of an Opec + deal to cut oil supply.
Asked what more his administration could do to address the situation on Tuesday, Mr Trump said the most important thing was to re-open the US economy. The White House last week released guidelines aimed at helping governors determine when they could safely lift lockdown orders.
“The toolbox is to get our country open, that’s by far the biggest thing,” Mr Trump said at the White House. “That’s where the engine is [and is] more important than any other things that we can work on.”
The severe drop in demand coincides with levels of US production remaining robust despite oil storage tanks being just weeks away from reaching capacity. The plunge to below $0 was in part the result of traders seeking to offload any obligations to take on physical product ahead of the May contract’s expiry on Tuesday, as storage reached capacity at its delivery point in Cushing, Oklahoma.
The May contracts tumbled as low as minus $40 a barrel on Monday, marking the first time it had fallen in to negative territory, where it remained on Tuesday before rising to settle at $10.01 a barrel.
“The contagion has spilled over to WTI June 2020 deliveries, which could also be well on their way into the red as we move towards physical delivery dates,” said Louise Dickson at Rystad Energy.
Plans for unprecedented supply cuts by some of the world’s biggest producers such as Saudi Arabia and Russia have so far failed to offset the tumble in oil demand.
Fatih Birol, head of the International Energy Agency, said on Tuesday that the reductions, set to begin to take effect next month, were “insufficient to rebalance the market immediately due to the scale of the drop in demand”. He called for countries that have committed to supply cuts to enact them as soon as possible and suggested they consider deepening them.
Meanwhile, officials and Opec delegates sought to talk up the market. Saudi Arabia said on Tuesday it was prepared to take additional measures, alongside other producers that are part of the Opec+ alliance, to prop up the oil market and achieve market stability. SPA, Riyadh’s state news agency, cited a cabinet statement saying: “[The] Kingdom is committed with Russia to implement production cuts over next couple of years.”
Opec delegates were due to hold a conference call on Tuesday to discuss the WTI price plunge and potential next steps, said one person familiar with the matter. “The thing is, there is nothing anybody can do. Producers need to find a way to ride it out.”
For its part, Russia downplayed the collapse in crude prices, saying there was no need to view it as an “apocalyptic” event after its Ural blend, which is loosely based on Brent, fell to its lowest level since 2002.
“The chaos with futures is absolutely speculative, just a trading issue,” Kremlin spokesman Dmitry Peskov said. “Of course there is no need to give this an apocalyptic hue.”
The oil collapse has also underscored the powerlessness of Donald Trump, who had pressured Saudi Arabia and Russia to agree to supply curbs in a bid to support the domestic shale industry.
On Tuesday the US president said on Twitter he had told the energy and Treasury secretaries to “formulate a plan” to make funds available to energy producers “so that these very important companies and jobs will be secured long into the future”.
US and European equities slid, partly dragged down by weakness in energy stocks. The S&P 500 closed 3.1 per cent lower, while in Europe the continent-wide Stoxx 600 was down 3.4 per cent.
In fixed income, the yield on the 10-year US Treasury fell 0.07 percentage points to 0.56 per cent as investors retreated to the safety of core government debt.
Additional reporting by Hudson Lockett in Hong Kong