Oil Prices Sink as World Runs Low on Storage Capacity 


US oil prices sink sharply on Tuesday as concerns over storage capacity raising fears that the American crude benchmark will collapse into negative territory again.

28 April, 2020 | AtoZ Markets – Oil prices sink again due to dwindling global crude oil storage capacity. Experts think that fuel demand will slowly recover after countries ease restrictions to fight the coronavirus pandemic. The US West Texas Intermediate (WTI) crude futures contract CLc1 fell to $10.63 a barrel on Tuesday and lost 12.7%. WTI plunged 24% on Monday. Moreover, Brent crude LCOc1 futures fell to a low of $ 18.84 and fell 4.3%. The benchmark slid 6.7% on Monday, and the contract for the June delivery expires on April 30.

Coronavirus Fuels Oil Storage Fears

Extreme price swings have rocked global oil markets in recent sessions. Last week, WTI crude oil for May delivery fell to – $40 a barrel shortly before its expiration. It is the first time in history that the price of an oil contract has fallen below zero.

The coronavirus pandemic has reduced demand for oil by almost a third, raising concerns that unwanted supplies will overwhelm global storage capacity. Oil tanks have been filled or reserved by traders, while the amount of crude and fuel stored on ships at sea has skyrocketed.

Strategists said that part of the drop in WTI is due to retail investment vehicles such as exchange-traded funds. It sells out of the front-month June contract and buys into months later in the year to avert massive losses like last week. The US Oil Fund LP (USO) (USO.P), the largest oil-focused US exchange-traded product, said it would continue to transfer assets into contracts at a later date.

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Traders said the only solution would be to start shutting down or cutting production, but most oil companies are reluctant to take the first step. The oil group Opec and its allies like Russia are expected to start cutting about 10% of world supply from early May. This may be accelerated. But the demand size drop is closer to 30% of the world market normally of 100m barrels per day.

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