DUBAI: American crude faced wipeout on Monday as US traders confronted the reality of a world awash with oil and nowhere to put it.
West Texas Intermediate, the US benchmark, sank like a stone for most of the day, hitting, then crashing through, historic lows. From a start above $18, at one point it was trading at a symbolic 1 cent a barrel — effectively worthless.
When New York trading ended, WTI was in negative territory for the first time ever — minus $37.63 a barrel, as traders were forced to pay others to take it off their hands.
“The May crude oil contract is going out not with a whimper, but a primal scream,” said oil analyst Daniel Yergin of IHS Markit.
Demand for all energy products has been crippled by the COVID-19 pandemic, which has lopped about 30 per cent off normal daily requirements. Last week’s historic deal between Saudi Arabia and Russia in the OPEC+ alliance removed less than 10 per cent from global supply.
Brent, the Middle East benchmark, also fell on worries about over-supply. However, the decline was less severe, mainly for technical and logistics reasons, and it traded about 7 per cent down at about $26 per barrel.
Traders in Dubai told Arab News that factors related to the expiry date of contracts for physical delivery of oil in May hammered the WTI price. Those contracts expire on Tuesday and WTI may recover for the new contract for June delivery — provided there is a pick-up in demand.
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A more worrying sign for the American industry is that the giant storage facility at Cushing, Oklahoma, where most US crude is stored awaiting delivery, can take no more oil. “All the storage at Cushing is full,” the Dubai trader said.
Michael Tran, managing director of global energy strategy at RBC Capital Markets, said: “Refiners are rejecting barrels at a historic pace and with US storage levels sprinting to the brim, market forces will inflict further pain until either we hit rock bottom, or COVID clears, whichever comes first. But it looks like the former.”
The collapse in the price of US oil comes after President Donald Trump helped broker the OPEC+ supply deal,which he said would save “hundreds of thousands of jobs” in the US oil industry.
Since then, the American shale industry’s rig count, the number of wells in operation, has declined sharply as producers either cut production or went out of business.