LONDON (Reuters) – U.S. oil futures traded in negative territory on Tuesday, after sinking nearly $40 the previous session in their first ever dive below zero, as concern grew the sector will run out of storage for a glut caused by the coronavirus lockdown.
FILE PHOTO: The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. REUTERS/Angus Mordant
Global benchmark Brent crude also fell in response to the collapse of demand following reduced economic activity.
U.S. West Texas Intermediate (WTI) crude for May delivery CLc1 traded at minus $2.58 a barrel by 0807 GMT, up $35.05 from Monday’s close when the contract settled at a discount of $37.63 a barrel.
The slump in the U.S. contract was exaggerated by the looming expiry late on Tuesday of the front-month contract for delivery of oil in May when the lack of storage is set to be particularly acute.
The more-active June contract CLc2 slipped 23 cents, or 1.1%, to $20.20 a barrel. June trading volumes were roughly 80 times those of the expiring May contract.
Global benchmark Brent crude for June delivery LCo1 was down $3.22, or 12.6%, at $22.35 per barrel.
“Demand destruction from COVID-19 will see a slower than expected reopening of the U.S. economy,” Edward Moya, senior market analyst at brokerage OANDA, said. “The WTI crude June contract was able to hold the $20 a barrel level and is seeing a modest gain following the painful rollover of the May contract.”
Restrictions on movement to try to contain the novel coronavirus have reduced oil demand by an estimated 30%, resulting in a huge surplus of crude in need of storage.
The main U.S. storage hub in Cushing, Oklahoma, the delivery point for the U.S. West Texas Intermediate (WTI) contract, is expected to be full within weeks.
Anxious to bolster the earnings of the U.S. oil industry, U.S. President Donald Trump said on Monday his administration would consider halting Saudi crude oil imports.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, a grouping known as OPEC+, agreed this month to cut output by 9.7 million barrels per day (bpd).
But that cut will not take place before May, and is not considered enough to restore market balance.
“The recently agreed supply cuts do little to solve the near-term oversupply problem in the global market,” JBC Energy said in a note.
U.S. crude inventories were expected to rise by about 16.1 million barrels in the week to April 17 after posting the biggest one-week build in history, five analysts polled by Reuters found.
The American Petroleum Institute is set to release its data at 4:30 p.m. (2030 GMT) on Tuesday.
Reporting by Noah Browning and Jane Chung; editing by Barbara Lewis