U.S. oil prices crashed to the lowest levels in more than two decades Monday, amid the biggest single-day decline since the early 1980s, as investors tallied the economic cost of COVID-19 against a world awash with cheap crude.
As the global economy faces its steepest recession on record, and oil demand is set to fall some 30% from last year, traders dumped front-month oil futures -- which are set to expire tomorrow -- in overnight dealing and fretted over the capacity of storage facilities both in the U.S. and abroad. Reuters, in fact, reported that at least 160 million barrels in unwanted crude are floating on tankers around the world as speculators struggle to find a home for the crude they purchased prior to the coronavirus outbreak.
"With a huge surplus in crude products filling inventories on land, there is a clear benefit to those producers whom are able to put their oil out to sea," said Joshua Mahony, senior market analyst at online trading firm IG in London. "Unfortunately, the lack of demand and landlocked nature of production in the US and Canada has already started to provide negative prices across a number of crude products in North America."
"With the insufficient OPEC+ production cut of 9.7 million barrels per day only kicking in at the start of May, the huge oversupply issue looks unlikely to go away anytime soon," he added.
Brent crude futures contracts for June delivery, the benchmark reference for around 60% of global crude purchases, were marked $1.68 lower from their Friday close in New York and trading at $26.40 a barrel in early Monday trading.
WTI crude futures for May 20 delivery, which are more tightly connected to domestic gas prices, fell as a staggering $6.60 or 36.12%, to $11.67 per barrel, the lowest since March of 1999.
The June delivery contract, which will assume "front month' status tomorrow, was marked $2.68 lower at $22.35 per barrel.
Last Friday, oil services group Baker Hughes said U.S. drillers pulled 66 rigs from operation, the biggest decline since February 2015 and capping a one-month period during which some 35% of capacity has been taken offline amid signals of a cliff-edge decline in global demand.
The International Energy Agency, in fact, has forecast the steepest decline in global demand on record as the coronavirus pandemic shutters the world economy.
That followed last week's agreement among OPEC member states, as well as non-member allies such as Russia, to cut their collective production by 9.7 million barrels per day, with the U.S., Canada and Brazil contributing 3.7 million barrels per day.
Market reaction to the cuts, which go into effect on May 1, has been dictated by the fact that the reference point for the reductions will be April, a month during which Saudi Arabia had pledged to pump around 12.3 million barrels of crude was it ramped-up its price war with Russia.
That effectively means the first phase of the cuts -- from May until June -- will amount to around 7 million barrels per day for OPEC+ and slide to 5 million barrels per day over the second half of the year.
"The measures announced by OPEC+ and the G20 countries won’t rebalance the market immediately," the IEA said last week. "But by lowering the peak of the supply overhang and flattening the curve of the build-up in stocks, they help a complex system absorb the worst of this crisis, whose consequences for the oil market remain very uncertain in the short term."
"There is no feasible agreement that could cut supply by enough to offset such near-term demand losses," the agency added. "However, the past week’s achievements are a solid start and have the potential to start to reverse the build-up in stocks as we move into the second half of the year."