By Peter Nurse
Investing.com - The meltdown of the oil markets continued Tuesday, with sharp selling along the futures contracts curve and not only in the expiring front month May contract.
The May Crude Oil WTI futures contract, due to expire later Tuesday, remained in negative territory Tuesday, although nowhere near as low as Monday’s historic settlement of minus $37.63 a barrel.
The June contract, where most of the volume and open interest lies, is in positive territory, but at 9:10 ET traded 29% lower at $14.45 a barrel, while the international benchmark Brent contract fell 23% to $19.85
The extension of the price collapse to futures contracts that aren’t due for expiry vividly illustrates the severity of the crisis in the oil market. Demand has collapsed as economies were shut down across the globe to combat the spread of the coronavirus, resulting in a massive oversupply of oil and storage space becoming rapidly filled.
So where do we go from here?
A number of European countries and U.S. states are tentatively looking at reopening their economies, but a full global reopening looks a long way off so demand isn't going to pick up substantially any time soon.
Looking at supply, the cuts of 9.7 million barrels per day agreed by the Organization of the Petroleum Exporting Countries and other large oil producers led by Russia, a group known as OPEC+, comes into play in May and June, although newswire reports late on Monday cited Saudi officials as accelerating the cuts and said that Russia had mandated a 20% output cut across its state-dominated upstream industry.
Additionally, the Texas Railroad Commission is set to meet later Tuesday, and there is the potential that it votes in favor of cuts for producers in the state.
That would help reduce the oversupply, but not by much given there are now 160 million barrels of oil being stored on tankers, according to a Reuters report, while storage at Cushing is nearly full.
“It is likely that storage this time next month will be even more of an issue, given the surplus environment, and so in the absence of a meaningful demand recovery, negative prices could return for June,” said ING, in a research note.
American Petroleum Institute data for weekly oil stocks are due at 4.30 PM ET. Data from the government on the situation at Cushing will follow at 10:30 AM on Wednesday.