US oil prices tumbled to their lowest level in trading history dropping towards $10 a barrel as a collapse in demand triggered by the coronavirus pandemic leaves the world awash with crude that it is struggling to store.
West Texas Intermediate, the US marker, dropped 40 percent in Monday’s trading, crashing to a low of $10.77 a barrel for the first time since the Asian financial crisis in 1998 as warnings mount that storage could fill up within weeks — including at the benchmark’s delivery hub of Cushing, Oklahoma.
Lockdowns imposed in many of the world’s major economies have sent crude demand tumbling by as much as a third, leaving the industry facing what Jefferies analyst Jason Gammel called “the bleakest oil macro outlook since at least the late 1990s and perhaps ever”.
Physical grades in many North American regions have fallen into the low single digits, reflecting a dearth of buyers able to take delivery.
The WTI contract for May delivery was down 35 percent at $11.90 a barrel by early afternoon in Europe. The May contract expires on Tuesday, and has come under extreme pressure in the last two sessions with traders seemingly nervous about taking deliveries of barrels without easy access to storage.
WTI for June delivery was down 10 percent at $22.62, while Brent crude, the international marker, dropped 5 percent to $26.69.
“The May contract expires tomorrow so volume on it is going to be very light. The June contract is more reflective of the changes,” said Olivier Jakob at Petromatrix. “That being said, oil is very weak . . . The big thing right now is destruction of demand due to the virus.”
Crude prices have plummeted this year on the possibility that the coronavirus outbreak will cause a deep global recession. The number of Covid-19 infections worldwide topped 2.4m as of Monday, according to Johns Hopkins data, with more than 165,000 dead.
The latest developments “painted a grim picture of a world still firmly in the grip of the coronavirus crisis, amplifying worries about sinking oil demand”, said Vandana Hari, founder of Vanda Insights, a Singapore-based energy research firm.
The deepening fall in oil prices has come despite an Opec-backed deal to cut roughly 10 percent of global crude supply. Reductions of varying magnitude are planned to run until April 2022 as part of efforts to stabilise prices.
Baker Hughes data on Friday showed that the number of active oil rigs in the US has dropped by more than a third over the past month. But signs of curtailed US supply have done little to boost prices.
“Too much oil, with nowhere to put it,” said Kit Juckes, a senior strategist at Société Générale in London, noting that “oil-sensitive currencies are under pressure again”.