By Peter Nurse
Investing.com - Oil markets slumped Monday, falling to multi-year lows as producers and traders struggle to find places to store the excess supply given the slump in demand caused by the coronavirus outbreak.
AT 9:35 AM ET (1335 GMT), U.S. crude futures, in the form of the June WTI contract where most open interest and volume is concentrated, traded over 11% lower at $22.20 a barrel, as traders scrambled to get out of futures positions in order to avoid taking physical delivery of cargos that they can neither sell nor store.
The front-month May contract for West Texas Intermediate, the U.S. crude benchmark, which expires on Tuesday, fell as low as $11.42, down 37%, the biggest one day drop since the launch of the WTI contract in March 1983.
The international Brent contract fell 6.1% to $26.38 a barrel.
At issue is the severe drop in global demand caused by the almost universal shutdown to combat the spread of the coronavirus outbreak. The oil industry has been reducing output to try and counter an estimated 30% decline in fuel demand worldwide, but the production cuts from OPEC and allies including Russia--amounting to 9.7 million barrels per day--will only take effect from May.
As a consequence, producers have been struggling to find places to store the excess oil.
There are now 160 million barrels of oil being stored on tankers, Reuters reported, a record amount and above the 100 million barrels stored at sea during the 2009 financial crisis.
Also, the volume of oil held in U.S. storage, especially at the Cushing delivery point for the WTI contract in Oklahoma, is rapidly increasing, amid estimates that this storage facility could be full by mid May.
"As production continues relatively unscathed, storage is filling up by the day. The world is using less and less oil and producers now feel how this translates in prices," said Rystad's head of oil markets, Bjornar Tonhaugen.