Following this week’s historic crash of US crude benchmark West Texas Intermediate (WTI), international benchmark Brent has plunged to the lowest level since 2001 on Tuesday, trading below $20 a barrel.
US oil plunged into negative territory for the first time on record on Monday, as economies around the world shut down to contain the coronavirus pandemic, crippling global demand for energy. The buildup of inventory has triggered a sharp selloff of the commodity on the markets, amid uncertainty over storage capacity for excess oil.
After briefly rising above $1 per barrel on Tuesday, the June WTI contract sank into negative territory again to – $7.65 per barrel.
The prices of oil continued to freefall despite OPEC securing a 9.7 million barrel-per-day cut in production. Oil tankers are reportedly languishing at sea, unable to find onshore facilities to store their bounty. Demand for the commodity has dropped an estimated 30 percent worldwide amid the global pandemic.
“When oil turns into a negative-yielding asset, that’s a signal that the imbalance between supply and demand has reached a crescendo so great that producers are losing money to get oil off their books. And speculators are playing a game of ‘musical chairs’ to see who ends up holding those contracts at the end,” Marios Hadjikyriacos, investment analyst at XM, told MarketWatch.
Analysts told MarketWatch that oil producers seem to face black-swan events that can destroy demand or greatly increase supply at any time.
The oil market will not start to see a recovery before June despite the biggest-ever production cut by OPEC and its allies, according to analysts who spoke to RT. The market is not responding to the promised reductions in output, and prices will stay at the same low level due to the halt of global interconnection amid coronavirus lockdowns, they said.
While the spread between WTI and global oil benchmark Brent Crude is at one of its widest levels ever, with Brent trading at a nearly two-decade low of $19.80 per barrel on Tuesday morning, increasingly flooded inventories will be “likely dragging Brent prices lower as well,” Edward Bell, commodities analyst at Dubai-based Emirates NBD, told CNBC.
Dave Ernsberger, global head of commodities pricing for S&P Global Platts, added that while Brent storage is more commonly on floating tankers and can move around the world (in contrast to much of the American crude that’s stuck in landlocked pipelines in the heart of the US), other producer countries “need to look over their shoulder because Brent is not far behind, other crude benchmarks are not far behind, and the world is running out of storage.”