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Oil prices fall on brimming storage, bleak recovery prospects

CommoditiesApr 28, 2020 05:15AM ET
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© Reuters. FILE PHOTO: FILE PHOTO: An oil pump jack pumps oil in a field near Calgary

By Bozorgmehr Sharafedin

LONDON (Reuters) - Oil prices plunged for a second day in a row on Tuesday on concerns about dwindling global capacity to store more crude and fears that demand may be slow to recover even after countries ease restrictions to combat the coronavirus pandemic.

Brent crude (LCOc1) fell 83 cents, or 4.1%, to $19.16 a barrel at 0808 GMT, following a 6.8% slide on Monday.

U.S. West Texas Intermediate (WTI) crude (CLc1) was down $2.57, or 20%, at $10.21 a barrel. The contract plunged 25% on Monday.

Analysts said part of the WTI decline was due to retail investment vehicles like exchange-traded funds selling out of the front-month June contract and buying into months later to avert massive losses like last week, when WTI fell below zero.

The United States Oil Fund LP (USO) (P:USO), the largest oil-focused U.S. exchange-traded product, said it would further shift its holdings into later-dated contracts.

"The exodus in our view remains motivated by concerns over the saturation of storage capacity at Cushing and the associated risk of negative pricing," Harry Tchilinguirian, global oil strategist at BNP Paribas (PA:BNPP), told the Reuters Global Oil Forum.

Graphic - Cushing crude stockpiles surge: https://fingfx.thomsonreuters.com/gfx/ce/rlgvdybepoj/cushing%20storage.PNG

Although the world economy may start to recover as more countries allow businesses to reopen, analysts say prospects for oil prices remains gloomy with so much crude in storage and supply cuts still not deep enough to counter plummeting demand.

"While we expect oil demand to modestly recover from the April lows as countries ease some lockdown measures, demand will remain under severe pressure in the near term because of the COVID-19 pandemic," said UBS commodities analyst Giovanni Staunovo.

BP (L:BP) Chief Executive Bernard Looney told Reuters his firm expected global oil demand to drop by about 15 million barrels per day (bpd) in the second quarter due to coronavirus-related movement restrictions.

Graphic - World population under lockdown: https://fingfx.thomsonreuters.com/gfx/ce/dgkplkobvbx/jet2.JPG

That is more than the 10 million bpd of cuts agreed by the Organization of the Petroleum Exporting Countries, Russia and other allied producers. The reductions are due to be implemented from May 1.

Russian Energy Minister Alexander Novak said on Tuesday oil markets would start balancing out once an output deal took effect, but no significant rise in prices was likely in the near future due to high levels of global storage.

Global storage onshore was estimated to be about 85% full as of last week, according to data from consultancy Kpler.

In a sign of the energy industry's desperation for places to store petroleum, oil traders are resorting to hiring expensive U.S. vessels to store gasoline or ship fuel overseas, shipping sources said.

Oil prices fall on brimming storage, bleak recovery prospects
 

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Comments (9)
cran Vivid
cran Vivid Apr 28, 2020 5:41PM ET
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Whats the secret of WTI oil going down and major oil producers stock going higher and higher in this climate?!
mike frykberg
mike frykberg Apr 28, 2020 9:18AM ET
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Well as a Canadian , who works in the oil patch , All you hear up here is trump is doing best he can with what he has been dealt, Sure Fake news CNN mis leads, and as you Americans get closer to election the more fake news that will come out against the president.  But fact of the matter, oil industry has got a lot more effiecient, we now put as many as 20 wells on one lease site, each well multiple zones, Fracing technology is better, production is up. And then Bam add covid 19, Would not of mattered which president you had in office this would of played out exactly the same ,
James Hilton
James Hilton Apr 28, 2020 5:21AM ET
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This should put another few % on the markets.
Tre Hsi
Tre Hsi Apr 28, 2020 5:00AM ET
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so Trump's "historical deal" didn't do much for oil price, neither did his saber rattling against Iran, I wonder what other tricks President Orange Hair got to boost oil price?
Rey Cuthbert Pandes
Rey Cuthbert Pandes Apr 28, 2020 4:54AM ET
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As other countries resume as they lifted Lock down, price will go up, but Hey See to it you pick on the Bottom God Bless
Đorđe Merdžijević
Đorđe Merdžijević Apr 28, 2020 4:45AM ET
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If you play down, play short. From May 2 few will open. Price will go UP soo fast
Rick Lai
Rick Lai Apr 28, 2020 4:45AM ET
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Still negative will be appeared in May oil.
Brijesh Patel
Brijesh Patel Apr 28, 2020 3:30AM ET
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Seems like virutal currency (Bitcoin , ether , ripple etc..) has value compare to physical assets..... Un-necessary people were saying crypto should not buy as its virtual etc...
Roman Cerny
Roman Cerny Apr 28, 2020 3:30AM ET
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It is also interesting to see the approach of CFTC towards ETFs. They say crypto market is too volatile, crypto market is being manipulated etc. But what is happening in oil market? Volatility is much higher, manipulation (if I accept this term because then I can argue all markets are being manipulated) is also part of the oil prices development (e.g. Trump tweets) and then we see USO ETF can actually signigicantly change their holdings which affects the price again...So CFTC takes completely biased approach here
Cuh Toto Adlicilef
Cuh Toto Adlicilef Apr 27, 2020 11:01PM ET
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...I think yhis will be resolve when the pandemic is over..
Mark Bench
Mark Bench Apr 27, 2020 11:01PM ET
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It will resolve when people start driving and flying again like normal.  https://www.flightradar24.com/data/statistics
Emanuel Dabah
Emanuel Dabah Apr 27, 2020 11:01PM ET
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Mark Bench  mainly driving flight is only 6% to 8% of the demand
Mark Maxwell
MaxAnalysis Apr 27, 2020 10:49PM ET
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during the runup to the American invasion of Iraq oil markets were badly disrupted, prices never recovered from the spike, the result is production overheated especially over the last decade now there's too much supply above and below ground, the pandemic has cratered demand, not to mention gasoline is now obsolete as the energy source for automobiles, it's going to be a long haul, expect some massive consolidation
Tre Hsi
Tre Hsi Apr 27, 2020 10:49PM ET
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I wouldn't say gasoline/diesel are obsolete as car fuel, even now the electric cars are what, 5% or less of total new car sales?
Mark Maxwell
MaxAnalysis Apr 27, 2020 10:49PM ET
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Tre Hsi  EV adoption is about where the Smartphone was in 2007 5-6% .. a dozen plus years later how many flip phones you seeing around? pretty much zilch-o!
 
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