(Bloomberg) -- Oil held below $13 a barrel in Asia after the biggest oil ETF said it would dump the June crude contract amid dwindling global storage capacity.
Futures in New York rose 1%, after plunging 25% on Monday. The United States Oil Fund (NYSE:USO) LP said it would move all the money it invested in the front-month June WTI oil contract, triggering a massive swing in the price relationship between the June and July contracts. Brokerage firms are also restricting client’s abilities to add new positions to certain crude contracts.
The global oil market is on track to test storage capacity limits in as little as three weeks, requiring the shut-in of nearly 20% of global production, according to Goldman Sachs Group Inc (NYSE:GS).
In order to avoid Cushing storage from becoming more than 90% full in May and June, total production shut-ins would have to equate to 1 million barrels a day in May, according to a JPMorgan Chase (NYSE:JPM) & Co. note. A further 500,000 barrels a day of shut-ins may be needed in June as well, the report said.
South Korea, which holds the fourth-biggest commercial storage capacity in Asia, was said to have run out of onshore space. Singapore’s coastline has become even more congested as the number of oil-laden tankers anchored offshore wait to be redirected to a willing buyer.
Russia perhaps offers a glimmer of hope that a more balanced market isn’t far away. The world’s largest energy producer will next month ship the smallest amount of Urals crude from its three main western ports in at least a decade. Meanwhile Saudi Arabia is said to have made an early start on drastic output cuts that weren’t meant to kick in until May 1.
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