Futures in New York for May dropped to a fifth of their value from last week in spite of the Opec+ – G20 pact to draw back 20m bpd of crude.
US oil prices plunged to a 21-year low as markets worry about an increase of supply coming into the market, a saturation of storage capacity and subdued demand due to the coronavirus pandemic that has brought the world economy to a halt.
West Texas Intermediate, the benchmark for US oil, fell 19.65 per cent and was trading at $14.68 per barrel at 9.24am UAE time during the opening session, while Brent futures declined 1.75 per cent to $27.59 per barrel.
Futures in New York for May collapsed to a fifth of their value from last week in spite of a global pact to draw down as much as 20 million barrels per day from the markets.
However, the Opec+ agreement, which relies on involuntary cuts for half the drawdown is expected to kick in from May.
Against this backdrop, crude is running out of storage facilities with global capacity expected to reach saturation as soon as May, according to estimations by various energy agencies, due excess supply and low demand.
“Levels near $15 are appealing for investors wanting to jump on the back of a positive correction, but the downside risks prevail as the sell-side appears to be fiercer than many believed,” Swissquote Bank senior analyst Ipek Ozkardeskaya said.
“In the medium term, however, there should be a significant upside correction in oil prices,” Ms Ozkardeskaya added.
“How deep the prices could retreat before they rebound is uncertain. With little to improve the investor appetite in horizon, the price slump could extend toward the $10 a barrel.”
Opec+ is set to enforce 9.7m bpd of cuts from May, however, the producers led by Saudi Arabia are bringing record levels of output to the market in April.
Opec+ appeared open to suggestions for more than agreed to share of cuts should the price rout continue. The alliance was monitoring the oil markets closely and was prepared to take “further measures jointly with Opec+ and other producers, if deemed necessary” Riyadh and Moscow said in a joint statement over the weekend.
“If the Opec+ deal carries on last previous iterations we would expect to see voluntary Saudi over-compliance, i.e., cutting more than its share of the deal provided that other producers make an effort to cut output as well,” said Aditya Pugalia, director, financial markets research at Emirates NBD.
Global oil storage capacity is close to the brim, with the US energy department said to be considering paying producers to keep their oil reserves untapped. The department of energy stepped up buying of crude when prices bottomed but domestic and global capacities are close to full.
US crude stocks at refineries and tank farms, which averaged 375m barrels at the end of last week have filled up 57 per cent of available capacity, according to the Energy Information Authority.