The spectacular collapse in oil markets is showing no signs of easing, as the coronavirus crisis saps demand and producers run out of places to store all their excess barrels of crude.
US oil prices plunged more than 28% to nearly $13 per barrel on Monday, their lowest level since 1999.
The selloff can be attributed in part to market mechanics. The May futures contract for West Texas International, the US benchmark, is about to expire. Most investors are already focusing on the June contract, thinning out trading volume and feeding volatility, UBS analyst Giovanni Staunovo told me.
The extreme pressure on the WTI contract for May highlights ongoing concerns about the supply and demand dynamics plaguing the oil market.
What about the OPEC+ deal?
Saudi Arabia, Russia and other producers tried to prop up prices with a deal last week to slash production by 9.7 million barrels per day in May and June, the deepest cut ever negotiated. But that isn’t expected to soak up the supply glut caused by evaporating demand for energy.
Oil storage facilities are still at risk of overflowing, raising the chance that some oil producers in the United States and Canada could start paying customers to take crude off their hands, according to Staunovo.
Investors are particularly worried about storage reaching capacity in Cushing, Oklahoma, the main US hub.