Oil prices had crashed a day earlier due to crippled demand and a storage glut
US CRUDE prices bounced back into positive territory on Tuesday, a day after crashing below USD 0.00 for the first time owing to crippled demand and a storage glut, while the commodity rout sent equities sharply lower. Investors were also tracking developments in North Korea following US reports that Kim Jong Un had undergone cardiovascular surgery earlier this month and was in “grave danger.” West Texas Intermediate for May delivery rose to USD 1.10 a barrel after diving to an unprecedented low of -USD 37.63 in New York as the pandemic brings the global economy, transport and factory activity to a halt.
However, it later eased back to sit 30 cents higher. The sell-off in May futures came because the contract expires later on Tuesday, meaning traders needed to find buyers to take physical possession of the oil -- a job made near-impossible as storage becomes scarce. However, focus is now on the June contract, which had trading volumes more than 30 times higher. That rose towards USD21 a barrel, from USD20.43 on Monday. Brent crude, the international benchmark, was changing hands at USD23.87 for June delivery, down from Monday.
The collapse in WTI “was driven by a precipitous drop in demand caused by the market expectation that the US lockdown could continue into May,” said Tai Hui at JP Morgan Asset Management. “This isn’t surprising, given flights are grounded and people are driving much less for work and leisure. If the economic reopening takes longer than expected, we could see pressure further out in the futures curve.” He added that firms were still churning out oil because stopping output “is not feasible for some producers since it could permanently damage their oil fields. Hence, giving their oil away for one month could still make sense in the long run.” Oil markets have been ravaged this year after the pandemic was compounded by a price war between Saudi Arabia and Russia.
While the two have drawn a line under the dispute and agreed with other top producers to slash output by almost 10 million barrels a day, that is not enough to offset the lack of demand. Equity markets were deep in the red, having enjoyed a healthy couple of weeks thanks to massive stimulus measures and signs of an easing in the rate of new infections globally. Tokyo ended two per cent lower, while Hong Kong shed 1.9 per cent and Sydney dropped 2.5 per cent with Mumbai more than three per cent lower. Shanghai sank 0.9 per cent while Seoul was down a similar amount and Taipei retreated 2.8 per cent. Singapore, Jakarta and Bangkok lost more than one per cent, and there were also big losses in Wellington and Manila. In early trade, London, Paris and Frankfurt tumbled. The losses came despite signs that the virus, which has infected almost 2.5 million people and killed 170,000, is easing as global lockdowns begin to take effect, allowing some countries to slowly return to normality.
Trump wants to use oil crash to fill national stockpile
PRESIDENT Donald Trump said on Monday the United States would take advantage of the historic drop in oil prices to replenish its national strategic stockpile, pending approval by Congress. “We are filling up our national petroleum reserves... You know, the strategic reserves,” Trump told reporters at his daily coronavirus press conference. “And we are looking to put as much as 75 million barrels into the reserves themselves,” he added. Later in the briefing, he specified that he would only buy that amount if Congress authorised the funding -- or if the federal Government could rent storage space to third parties for a fee. When prices eventually rebound, these vendors could sell their excess oil.
US oil prices crashed to unprecedented lows on Monday as futures in New York ended in negative territory for the first time amid a devastating supply glut that has forced traders to pay others to take the crude off their hands. The President had announced his intention on March 13 to fill the Strategic Petroleum Reserve (SPR) to the brim. As of April 17, it contained 635 million barrels of its current authorised limit of 713.5 million barrels.
Stored in a complex of four underground sites along the Gulf coasts of Texas and Louisiana, in the south of the United States, the SPR has a total storage capacity of 727 million barrels. This is intended for use in case of emergencies such as the 1991 Iraq War, or in 2005 after Hurricane Katrina.