Brent oil futures plunge as growing glut feeds market panic

FILE PHOTO: Crude oil storage tanks are seen from above at the Cushing oil hub, appearing to run out of space to contain a historic supply glut that has hammered prices, in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford/File Photo
Short Url
Updated 22 April 2020

Brent oil futures plunge as growing glut feeds market panic

  • More than 2 million contracts for US crude for delivery in June changed hands
  • Brent futures for June delivery settled down 24 percent to $19.33 a barrel

LONDON/NEW YORK: Brent oil futures prices plunged again on Tuesday, extending oil market panic into a second day with no end in sight to a swelling global crude glut as the coronavirus pandemic has obliterated demand for fuel.
Monday and Tuesday have been two of the most turbulent days in the history of oil trading, as investors confronted the reality that worldwide supply will overwhelm demand for months or years and current production cuts to offset that glut are nowhere near sufficient.
After Monday’s trade, when the front-month May US contract fell into negative territory for the first time in history, Tuesday set a new milestone as more than 2 million contracts for US crude for delivery in June changed hands, the busiest day in history, according to exchange operator CME Group.
Brent futures for June delivery settled down 24 percent to $19.33 a barrel, their lowest since February 2002. US West Texas Intermediate (WTI) crude for June, the front-month contract as of Wednesday, fell $8.86, or 43 percent, to settle at $11.57.
The US May contract, which expired on Tuesday, rebounded from its deep dive into negative territory, rising to $10.01 from the previous day’s settlement at minus $37.63.
Oil inventories have been building for weeks after Saudi Arabia and Russia early in March failed to come to terms on extending output cuts as the coronavirus pandemic worsened. Since that time, the pandemic’s spread has cut fuel demand by roughly 30 percent worldwide.
The Organization of the Petroleum Exporting Countries and its allies, including Russia, finally announced sweeping cuts in production in early April, amounting to almost 10% of global supplies. But with economies virtually at a standstill due to coronavirus lockdowns, that is not enough to offset the declining demand.
Both Saudi Arabia and Russia said on Tuesday they were ready to take extra measures to stabilize oil markets along with other producers, but they have not taken action yet.
“The math is pretty simple. Current oil production is about 90 million barrels per day, but demand is only 75 million barrels per day,” said Gregory Leo, chief investment officer and head of global wealth management at IDB Bank.
Meanwhile, in Texas, however, oil and gas regulators declined to force producers to curtail oil output. The Texas Railroad Commission, which regulates energy companies in that state, had considered intervening in markets for the first time in nearly 50 years.
“Texas punted their decision and with OPEC not showing any urgency, that pretty much means the world will run out of room to store oil by the second week of May,” said Edward Moya, senior market analyst at OANDA in New York.
The main US storage hub in Cushing, Oklahoma, delivery point for WTI, is expected to be full within weeks.
Official US government data shows that storage at Cushing was just 70 percent full as of mid-April. Traders, however, said that whatever was left then has been spoken for by firms sending oil to the hub right now.
US President Donald Trump called on the government to make funds available to the US oil and gas industry, calling Monday’s crash a “financial squeeze” and mooting a halt to Saudi imports.
US crude inventories rose by 13.2 million barrels in the week to April 17 to 500 million barrels, data from industry group the American Petroleum Institute showed on Tuesday. Analysts had expected a build of 13.1 million barrels.
Official government data is due to be released on Wednesday. 


Iraq pledges full compliance with OPEC+ oil cuts

Updated 08 August 2020

Iraq pledges full compliance with OPEC+ oil cuts

  • Prince Abdulaziz bin Salman Al-Saud, the Saudi Arabian energy minister, and his Iraqi counterpart, Ihsan Ismail, reaffirmed their commitment to the cuts
  • Under tough economic pressure, Iraq had struggled to meet the full cuts, but Ismail promised to reach 100 percent this month

DUBAI: Iraq has pledged to meet in full its obligations under the OPEC+ oil production cuts that have been credited with rebalancing global crude markets after the mayhem of April’s “Black Monday” when prices crashed around the world.

In a telephone call between Prince Abdulaziz bin Salman Al-Saud, Saudi Arabian energy minister, and his Iraqi counterpart, Ihsan Ismail, the two men reaffirmed their commitment to the cuts, which have helped to pull the oil price back from historic lows.

Brent crude, the global benchmark, has more than doubled in the past three months.

Under tough economic pressure, Iraq had struggled to meet the full cuts, but Ismail promised to reach 100 percent this month. Iraq has now committed itself to an ambitious program of compensation to make up for past overproduction.

Iraq will further reduce production by 400,000 barrels per day this month and next, Ismail said, bringing its total cut to 1.25 million barrels daily. That level of cuts could be adjusted when final estimates of compliance are assessed by the six “secondary sources” that monitor OPEC+ output.

“The two ministers stressed that efforts by OPEC+ countries toward meeting production cuts, and the extra cuts under the compensation regime, will enhance oil market stability, help accelerate the rebalancing of global oil markets, and send a constructive signal to the market,” a joint statement added.

Prince Abdulaziz thanked Ismail for his efforts to improve Iraq’s compliance with the agreement.

Iraq had been the biggest laggard in the move toward 100 percent compliance by the 23 members of the OPEC+ alliance.

Officials in Riyadh told Arab News that Iraqi compliance had reached about 90 percent, a high level by the country’s previous standards but still short of the new targets.

Saudi Arabia has been forcefully advocating full compliance with the targets in an effort to remove oil from the global market as demand is still badly affected by the economic fallout from the COVID-19 pandemic.

The oil market will be under the spotlight later this month when the joint ministerial monitoring committee of OPEC+ energy ministers convenes virtually in the most recent of the monthly meetings set up to oversee the state of the global industry.

Oil had another strong week on global markets, breaking through the $45 barrier for the first time since early March on signs that the glut in US oil stocks was easing, as well as reductions in the amount of “floating crude” stored in tankers on the world’s oceans.

The price spiked on news of the Beirut explosion, which some analysts believed could herald a deterioration in regional security and a threat to oil exports.

Brent crude was trading at $44.70 on international markets.